Andy Burnham to give regional mayors share of income tax

Prime Minister Andy Burnham has announced that, for the first time, all mayors of England's city regions will receive a share of income tax revenue. This initiative is part of his broader strategy to shift power from Westminster to local leaders.

Under the new plan, mayors of English strategic authorities will also be permitted to retain a portion of business rates collected within their jurisdictions and gain increased authority over services such as housing, transport, and skills.

The precise percentage of taxes allocated to mayors is yet to be determined, with further specifics expected when Chancellor John Healey presents his inaugural budget this autumn.

Critics have voiced concerns that the proposals lack sufficient detail and could result in areas with weaker economies experiencing funding shortfalls.

However, Burnham stated that this move would fulfill his commitment to "bring power home" to "every postcode in the country." He added, "Under our plans, more of the taxes raised in a community will stay in that community."

The UK's system for raising and controlling tax revenues is highly centralized, making it an anomaly internationally. According to the OECD, a global policy forum, the UK's share of national taxes collected at a local level is 5.8%, the lowest among G7 nations. This figure is significantly lower than that of other major economies like France (20.4%), Japan (36%), and the US (45.7%).

Currently, mayors of strategic authorities in England primarily receive funding through central government grants. During his tenure as Greater Manchester mayor, Burnham advocated for greater control over tax revenue, aiming to reduce reliance on government grants.

Prior to Burnham becoming prime minister earlier this month, the UK government had already been exploring the possibility of distributing a share of national tax revenue to metro mayors. In a significant speech on devolution in June, Burnham pledged to "oversee the biggest rebalancing of power our country has ever seen" if he became prime minister.

Devolution is a central tenet of Burnham's government plan, as he believes metro mayors are best positioned to stimulate economic growth nationwide. The prime minister aims for local areas to transition from dependence on Whitehall grants to funding models that incentivize local economic growth.

English metro mayors are anticipated to begin retaining some business rates revenue from April 2027 and receive a portion of income tax from April 2028. The intention is to replace grants with revenues from these taxes. The existing income tax rates, such as the basic rate of 20% on income between £12,571 and £50,270, will remain unchanged by these reforms.

Treasury sources indicate that some metro mayors could see an increase in their spending power if they successfully grow their local economies and expand their tax bases. The share of income tax allocated to each mayor may vary, with officials still working out the practical implementation.

The think tank Re:State has suggested that the government should allocate mayors 2.5p for every pound generated by the 20p basic rate of income tax within their areas.

Conservative shadow chancellor Sir Mel Stride criticized the announcement for being "very short on the detail." Sir Mel stated, "Unless Burnham is going to launch another tax raid elsewhere, borrow even more, or make cuts to central government grant, there is no new money being announced here." He warned that areas with weaker local economies could end up losing out, which he described as "the opposite of what Andy Burnham claims he wants to achieve."

Zia Yusuf, Reform UK's home affairs spokesman, called for the prime minister to "fully devolve the power to stop the housing of illegal migrants in local communities by the Home Office." He added, "Andy Burnham says he wants to devolve power and actually listen to local people. If he was listening, he would know that they do not want unvetted illegal migrants dumped in their areas."

Labour mayors, including Tracy Brabin, have expressed support for the devolution of tax revenues.

The government is also developing an equalization system to ensure that areas where less tax is collected continue to receive financial support. Under a "local first" principle, ministers will be required to justify why powers should remain with Whitehall rather than being devolved.

These reforms are being developed by No 10 North in Manchester, and a policy paper detailing the full plans will be released concurrently with the autumn budget.

The reforms follow a series of policy announcements during Burnham's initial two weeks in Downing Street, which included measures on the cost of living and a speech outlining his plan to overhaul social care.

Reactions to the plans among metro mayors from different parties have been mixed.

Tracy Brabin, the Labour mayor of West Yorkshire, commented that giving regions a proportion of income tax means "people will be able to see and feel the real benefit of their hard work and where that money is going." She told the BBC, "This will enable us to deliver on our ambitious plans including vital improvements to public transport, providing better skills and employment support."

Ben Houchen, the Conservative mayor for Tees Valley, stated his preference for government tax cuts. However, he added that if he were to receive a share of local income tax, he would "create a new rebate scheme to put money back into people's pockets."