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English regional mayors due to be handed a share of tax revenues by central government will be free to use it to give cash grants to individual residents and businesses, it has emerged. In his Budget, Chancellor John Healey unveiled plans to allow mayors to keep some cash from income tax and business rates collected locally, describing it as "the most radical act of devolution in a generation". Prime Minister Andy Burnham wants local leaders to be given more control over how money is spent in their areas to boost economic growth and services.
But Conservative Tees Valley Mayor Ben Houchen says he has been given assurances that he will be able to give grants to local residents instead. Lord Houchen told the BBC he is working on a voluntary scheme that would give local residents the opportunity to apply for a share of the tax distributed to his region. He said Treasury officials had told him this would be acceptable within the government's rules around the devolution of funding.
"It's a technical point around spending decisions," Lord Houchen told the BBC. He said devolution of funding was a "good thing" and "means mayors are able to decide spending commitments, which includes rebates". The BBC has been told mayors could choose to use the tax revenues they received from the government to offer grants to individual residents or businesses.
But any mayor who decided to use the money in this way would have less for other local priorities, such as housing and transport. Lord Houchen has described his proposal as a "tax rebate scheme". The Treasury would regard these payments as grants, because His Majesty's Revenue and Customs (HMRC) is the only government authority in the UK that can issue income tax rebates.
Most of England's 14 strategic authorities are led by Labour mayors who have welcomed the move to give them a portion of income tax receipts. Sources close to Reform UK's Greater Lincolnshire Mayor Andrea Jenkyns, and her counterpart in Hull and East Yorkshire, Luke Campbell, say they are waiting for more details to fully understand how they could use these tax revenues to benefit their regions. The government published its broad approach , external to reforming funding for local and regional government in England after Wednesday's Budget.
As it stands, mayors of English strategic authorities receive most of their funding from ring-fenced grants, allocated by central government to be spent on specific policy areas. From April 2028, all mayors of strategic authorities in England will be assigned a share of basic-rate income tax generated in their areas. Each mayor will receive a bespoke funding allocation that takes into account regional inequalities in tax bases, with the exact amounts to be set at the government's spending review next year.
"The government is not devolving the power to set income tax rates or thresholds to mayors but will be granting significantly more flexibility as to how assigned revenues are spent locally," the government's plan says. "Mayors will be able to choose where to target funding, for example whether to maintain funding for local transport or prioritise other interventions." From next year, mayors will also receive a 20% share of locally retained business rates. This will be the first step towards allowing local and mayoral authorities to retain 100% of their business rates income before the end of the decade.
From 2028, strategic authorities led by mayors will also be given the power to introduce an Overnight Visitor Levy, often dubbed a "tourist tax". This charge will be an uncapped levy as a percentage of the cost of hotels, bed and breakfasts and other types of accommodation. Labour mayors in 10 city regions said they would voluntarily limit the charge to 5% , but others - such as Lord Houchen - said they would not introduce the levy.
Burnham - who used to be a mayor himself in Greater Manchester - argues that funding and decision-making powers are too centralised in the UK. The share of national taxes collected at a local level in the UK is 5.8%, the lowest in the G7, according to the OECD , external , a global policy forum. That share is far below that of other countries with large economies such as France (20.4%), Japan (36%) and the US (45.7%).
But critics of fiscal devolution raise concerns about local capability, and inequalities between areas. The Centre for Cities think tank says some areas may not have the expertise to manage developed powers effectively, risking deeper economic inequalities between areas. The Tees Valley Combined Authority (TVCA) led by Lord Houchen is facing a government inspection into its finances, after Local Government Minister Jim McMahon said he had concerns about its "long-term financial sustainability".
The authority said it welcomed the scrutiny and would continue to make improvements where needed.
Source: BBC
