Andy Burnham has set out a major devolution shake-up that would allow Sir Sadiq Khan and other regional leaders in England to keep a portion of income tax and business rates raised in their areas, rather than sending the money to central government. The plan is designed to hand elected mayors greater control over the funding that supports transport, jobs and housing, and to give them a direct financial stake in the growth of their local economies.
The proposals are contained in a cabinet paper released on Friday, which is being treated as a blueprint for a more decentralised English state organised around mayors as the key regional economic actors. Alongside the changes to tax retention, the document envisages jointly governed pan-regional agencies covering transport, energy, investment and industrial systems, able to work across traditional mayoral boundaries. Regions of England that do not currently have an elected mayor would be offered the chance to have one, or to take on a more limited set of powers.
The potential financial impact is substantial. Reports suggest London could receive more than £2 billion extra under the tax-sharing arrangements. That would represent a significant shift from a model in which revenue raised across England is pooled nationally and then allocated through Whitehall budgets.
The plan comes against a backdrop of long-standing concern that England is one of the most centralised developed economies in the world. Mr Burnham has built his case on the economic history of recent decades, pointing to the rapid deindustrialisation of regions such as Yorkshire and the Midlands in the 1980s. Centralisation did not by itself close every factory or pit, his argument runs, but it left parts of the country without the powers, finance or institutions needed to cushion the shock and build resilient replacement economies.
The new approach is intended to address that weakness by rebalancing the relationship between Westminster and England’s regions. Instead of relying on centrally controlled grants, local leaders would benefit from a continuing stream of revenue determined partly by the performance of their own tax base. Devolution advocates hope this will support investment in transport, skills and industry, and make it easier for voters to hold regional leaders accountable for economic outcomes in their area.
There is also caution about how the plan should be implemented. Some commentators argue that the opportunity should be used to rebuild the economic capacity of poorer regions rather than to start a contest to offer the largest tax giveaway. The test, they say, will be whether the new financial freedoms are accompanied by strong local institutions and support for areas that begin from a weaker economic position.
For London, the prospect of retaining more of its locally raised revenue could give Sir Sadiq Khan additional resources for transport and housing, two of the biggest pressures facing the capital. For other parts of England, the detail of how income tax and business rates would be split will determine whether the plan delivers its promise of a genuine transfer of power.
The cabinet paper is at an early stage, and the final shape of any legislation will depend on negotiations between national government, metro mayors and local authorities across England. If implemented as proposed, the changes would mark one of the most significant shifts in the way England is governed in a generation, moving the centre of gravity away from Whitehall and towards the country’s regions.
