Government's Power Play: Mayors Poised for Income Tax Windfall in Major Shake-Up

Regional mayors across the UK are set to receive a significant transfer of power, funding, and responsibility from Westminster, described by the Government as the largest in a generation. This new system aims to grant local leaders enhanced freedom and flexibility, allowing them to retain revenue generated within their regions without central government dictation on its expenditure. The implementation will see mayors retaining a greater share of business rates from April 2027, followed by a share of income tax revenue from spring 2028. While the precise percentage of income tax to be devolved remains unspecified, further details are anticipated during the autumn budget.

Prime Minister Andy Burnham emphasized the government's commitment to decentralizing power, stating, “I said we'd take power out of Westminster and carry it into every postcode in the country. Today, we make good on that promise.” He added that under these plans, a greater proportion of taxes raised locally will remain within those communities, empowering local leaders with the resources to enhance public transport, construct homes, and generate employment. Burnham, drawing from his past experience of feeling overlooked by Westminster, affirmed he would not repeat that mistake as Prime Minister.

The comprehensive plans entail providing local leaders with stronger planning and regulation powers, control over funding and employment support for young people, and the ability to champion local industries and businesses to create jobs. A key aspect of these proposals is also expediting the construction and approval of local transport schemes, including trams and metros, by dismantling existing barriers within Whitehall. Prime Minister Burnham's blueprint appears significantly influenced by his tenure as mayor of Greater Manchester, where he, alongside other local leaders and the Manchester Evening News, championed initiatives like an underground station at Piccadilly. This station was envisioned to facilitate direct train routes, support future growth such as a revitalized Manchester-Birmingham line, and serve as a central hub for three new Metrolink tunnels. Despite initial governmental concerns regarding higher costs and civil servants advocating for an overground line, Burnham and Manchester City Council leader Bev Craig persisted. Their efforts ultimately led to the approval of a new Liverpool-Manchester line earlier this year.

The approved Liverpool-Manchester route promises to dramatically reduce journey times between the North West's two largest cities to as little as 35 minutes and significantly increase train frequency. Prime Minister Burnham envisions this transformation could elevate Piccadilly Station to become the 'King’s Cross of the North'. For regions currently without a mayor, the operational specifics of these plans are yet to be clarified, though it is understood that these proposals could act as a strong incentive for such areas to pursue greater devolution and elect a mayor, with Burnham expressing hope that more regions across the UK will embrace the ‘benefits of devolution’.

It has been clarified that this new system does not introduce new money but rather replaces grants previously distributed by the central government to Mayoral Strategic Authorities in England. The 'Integrated Settlement model' is already operational in two mayoralties: Greater Manchester and West Midlands. Greater Manchester Combined Authority and its ten constituent local authorities already retain 100 percent of business rates, further solidifying Greater Manchester's role as a template for nationwide devolution. The Prime Minister's overarching goal is to dismantle the ‘Whitehall-first’ culture and redistribute powers to local leaders, a shake-up that is also expected to lead to a more strategic and streamlined Civil Service.

Dr. Sarah Longlands, chief executive of the Centre for Local Economies (CLES), an independent think tank, hailed the announcement as monumental, stating, “This is big. Burnham is not messing around when it comes to shifting where decisions about money – and therefore power – lie.” She believes every community will benefit from more local decision-making, characterizing it as a “wholescale reengineering of the Westminster model.” However, Dr. Longlands also stressed the necessity of a robust fairness mechanism within the system to prevent disparities where some regions advance rapidly while others lag behind.

Earlier reports by The Times indicated that Reform and Conservative mayors were contemplating leveraging fiscal devolution to offer tax rebates to residents. Ben Houche, mayor of the Tees Valley region, was quoted as saying he would create a new rebate scheme if his area received a share of local income tax and business rates. However, a Government source cast doubt on the technical feasibility of such schemes, noting that mayors lack information on individual tax payments.

Greater Manchester, having enjoyed the widest range of devolved powers for the longest duration, has witnessed some of the highest growth rates in the country. This transformative experience has inspired other metro mayors in regions like Liverpool City Region and West Yorkshire to implement similar bus franchising programs. The impetus for these reforms will largely emanate from the No10 North office in Manchester, which Prime Minister Burnham confirmed would be responsible for ‘accelerating devolution’. This office will be overseen by Louise Haigh, the First Secretary of State and a long-standing ally of Burnham. Angela Rayner, Secretary of State for Housing, Communities and Local Government, is also expected to dedicate substantial time to the new northern headquarters. Rayner articulated her vision, stating, “This is the first step in our plan to rewire this country and build a better future, where power is no longer hoarded in Westminster but is put back in the hands of local people – where it belongs.” She added that the “devolution revolution” aims to end the “begging-bowl culture” of the past, equipping local leaders with the necessary tools to drive community-desired change, asserting that every region must be