Mayors to retain income tax and business rates under devolution drive

The reforms will allow strategic authorities to retain and spend a proportion of business rates from spring 2027, followed by a share of income tax revenues from 2028, and will replace the ring-fenced grants currently used to deliver local projects.

The plans, announced by Prime Minister Andy Burnham, will hand regional leaders greater control over investment in transport, housing, skills, and economic growth.

The government has yet to confirm what proportion of tax revenues will be retained, with further details expected in chancellor John Healey’s Autumn Budget.

The plans represent the biggest transfer of financial powers away from Whitehall in recent years and are intended to give local leaders greater freedom to invest in regional priorities.

Mr Burnham said: “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.

“Under our plans, more of the taxes raised in a community will stay in that community.

“Soon, every local leader will have the power and resources to improve public transport, build homes and create jobs.”

For Yorkshire and the North East, the reforms could accelerate major infrastructure and regeneration schemes by giving mayors greater financial certainty and reducing reliance on central government funding.

In West Yorkshire, the measures are expected to support Mayor Tracy Brabin’s plans for the proposed £2.5bn Leeds-Bradford mass transit network, with the government pledging to remove Whitehall barriers and speed up project approvals.

Some regional Mayors have also suggested using the new powers to return money directly to residents, namely Tees Valley Mayor Ben Houchen, who has proposed creating a local tax rebate if the reforms go ahead.

He told The Times: “Every mayor is backing fiscal devolution because they want more money to spend in their area.

“However, if the Tees Valley is handed a slice of local income tax and business rates generated locally, I’ll create a new rebate scheme to put money back into people’s pockets and let families keep more of the money they earn.”

Mayor of Hull and East Yorkshire, Luke Campbell of Reform, is also said to be considering a similar option.

While the mechanics of such a scheme remain unclear, it is understood options could include targeted support for small businesses or people receiving Universal Credit.

The Treasury has not yet calculated how much income tax individual mayoral authorities will retain. Ministers have said the reforms will be designed to avoid widening regional inequalities, with the expectation that stronger local economies will generate additional tax revenues over time.

Mayor of South Yorkshire, Oliver Coppard, said: “[This] announcement is a huge step in the right direction for two reasons.

“Firstly, we’re the most centralised country in the developed world, and have been for far too long. By committing to fiscal devolution, the Prime Minister is delivering on his promise to rebalance our country, allowing places like South Yorkshire to break free from control by London and the Treasury.

“Secondly, and even more importantly, we’ll now be able to take a long term view of investment and spending decisions. That simply hasn’t been possible up to this point. By giving us a long-term, steady funding source, we’ll have the freedom and flexibility to invest in the future, to respond to the challenges and opportunities we know best.”