Introduction

English regional mayors are set to receive a significant new funding stream after Chancellor John Healey announced they could keep a share of locally collected tax revenues. The move represents the most radical act of devolution in a generation and could allow local leaders to direct money toward residents and businesses.

What Happened

In his Budget statement, Chancellor Healey confirmed that mayors of English strategic authorities will receive a portion of basic-rate income tax generated in their areas from April 2028. Each mayor will receive a bespoke allocation that accounts for regional tax base inequalities. From next year, mayors will also receive a 20% share of locally retained business rates, marking the first step toward full retention by the end of the decade.

Mayors will have flexibility to decide how to spend their assigned revenues, including the option to offer cash grants to individuals and businesses. However, any funds directed toward grants will reduce the amount available for other local priorities such as housing and transport.

Why This Matters

The decision gives local leaders unprecedented control over public spending in their regions. Labour mayors have welcomed the change, arguing it will boost economic growth and allow more tailored support for communities. Prime Minister Andy Burnham, a former mayor himself, has long argued that funding and decision-making powers are too centralised in the UK.

Currently, the UK collects just 5.8% of national taxes at a local level - the lowest rate in the G7, according to the OECD. This compares with 20.4% in France, 36% in Japan and 45.7% in the US. The new powers aim to redress that balance, though think tanks warn some areas may lack the expertise to manage the responsibilities effectively.

Key Takeaways

  • Mayors will receive a share of income tax and business rates from their regions.
  • Grants to residents and businesses are permitted, but may reduce funding for housing, transport and other services.
  • Labour-led city regions are ready to act, while some Conservative mayors await further details.
  • From 2028, mayors can also introduce an uncapped tourist tax on overnight accommodations.
  • The UK's local tax take remains far behind international peers, making this a significant step toward fiscal balance.

Conclusion

The government's budget announcement marks a pivotal shift in how English city regions are funded and empowered. While the full rollout is phased between 2025 and 2028, the direction is clear: local mayors will have greater say over how tax money is spent in their communities. How effectively they use those powers - and whether the benefits reach residents evenly - will depend on local capacity, political will, and ongoing scrutiny of regional finances.