Fiscal devolution in England could be a memorable exception in a Budget meant to be largely forgotten.
As the Chancellor aims for elected mayors in all English areas, drawing powers down from central government, he yesterday promised them a share of the taxes raised from their patch.
Ministers argue that mayoral strategic authorities (MSAs) will be more effective and responsive if they raise more of their own funding, rather than going cap in hand to central government for grants.
John Healey called this “the most radical act of devolution in a generation”. But will it really drive the “good growth in every postcode” his boss wants, and will there be enough scrutiny of how the money’s spent?
Background
Former Greater Manchester mayor Andy Burnham wants all of England to be covered by regional devolution deals, which offer strategic authorities certain powers over transport, housing, skills and other areas once held by central government. Most will involve mayors who, the prime minister hopes, will be inspired by his “Manchester model” of growth through devolution.
Including Greater Manchester and London, there are already 14 MSAs in England, including seven others across the North: Liverpool City Region, Tees Valley, South Yorkshire, North of Tyne, West Yorkshire, York and North Yorkshire, and Hull and East Yorkshire.
The Budget statement updated progress on further deals. The government is now in the final stages of agreeing 10 new MSAs: Devon, Plymouth and Torbay; Hertfordshire; Lancashire; Leicester, Leicestershire and Rutland; Stoke and Staffordshire; Surrey; Thames Valley (Oxfordshire, Berkshire and Swindon); and Wessex. Kent and Medway, and Cornwall will become foundational strategic authorities at this stage, without a mayor and with fewer devolved powers.
Once complete, this will mean that more than 90 per cent of England’s population will have a devolution agreement in place, according to the Budget statement. Ministers want full coverage by the end of 2028.
There is evidence that regional mayors can be effective, having legitimacy with the electorate, strong influencing capabilities and the ability to work at a larger scale than local authorities. Control of the bus network in Greater Manchester, apprenticeship funding in the Liverpool City Region and Coventry’s regeneration are all cited as mayoral successes.
But England remains a highly centralised state, and critics point to Tees Valley mayor Ben Houchen as an example of what can go wrong when scrutiny and accountability are lacking. Deputy prime minister Angela Rayner has just launched an inspection of the Conservative mayor and the Tees Valley Combined Authority over concerns about finances and governance.
Nor are devolution deals easy to pull off. Earlier this year long-running negotiations over a Lancashire mayor were paused because of opposition to the necessary local government reorganisation – though Lancashire is now among the deals nearing agreement.
What the Budget offers
Until yesterday, fiscal devolution – the ability of a devolved authority to raise or retain its own money through taxation – was limited to pilots in Greater Manchester, the West Midlands, the Liverpool City Region, and the West of England, where MSAs received a small share of business rates and the rest went to its constituent councils. The Budget signals a major expansion in fiscal devolution.
MSAs will in future be largely funded through “assigned and local taxation, giving them the certainty and autonomy to drive transformational investment in their regions. Grant will only need to be used on an exceptional basis, where there is a clear policy rationale for this,” states the Budget’s accompanying Fiscal Devolution Roadmap.
The Chancellor intends that local and regional government will retain 100 per cent of their business rates before the end of the decade in place of grants from central government. The first step will be allocating mayors a 20 per cent share of locally retained business rates from next year. Local authorities will retain at least 70 per cent of business rates by the end of the decade.
Healey said: “If local leaders help businesses to start and grow, more of the rates they pay will stay in that area.”
Figures were not released for income tax assignment to mayors but it is intended to constitute the majority of mayoral funding. In their foreword to the roadmap, ministers James Murray, Dan Tomlinson and Jim McMahon wrote: “The long-term certainty that comes from access to tax revenues will enable mayors to invest more in projects that create the conditions for businesses to succeed and for local economies to grow.”
All strategic authorities across the country will also be given powers to implement a new overnight visitor levy. Labour mayors have said they would voluntarily limit the tax to 5 per cent of the cost of visitors’ accommodation if they do implement it but argued in a letter it would allow “meaningful investment”.
Healey also announced £285 million for Good Growth Funds, which will enable mayors to attract further investment in “local growth priorities”, and a £1.5 billion borrowing facility.
The roadmap promises to strengthen mayoral accountability but further detail, including the role of MPs in scrutinising MSAs, will have to wait for the Rewiring the State delivery plan, due by the end of the year – before the Houchen inspection, with findings expected in March next year.
Analysis
The Centre for Cities think tank welcomed the Budget as the “end of the beginning” for fiscal devolution but warned it was hard to to say whether the roadmap will improve growth in the short term until it’s confirmed how much money each mayor would get – and that central government might retain much control over the detail of the settlement.
“Perhaps the most important thing about the fiscal devolution roadmap is it shows the biggest battles have been won,” wrote Centre for Cities’ Anthony Breach. “The highest levels of policymaking now accept that our exceptional fiscal centralisation is a problem for the national economy. Income tax will soon be irreversibly part of the local funding mix – overcoming an impasse that has been stuck for almost 50 years in fewer than 12 months.”
Zoë Billingham, director of another think tank, IPPR North, called the Budget a “vote of confidence in our regional and local leaders” and urged the government to ensure income tax assignment is high enough to make a difference to people’s lives.
“Five per cent of income tax devolved to mayors would see an additional £4 billion held by mayors,” said Billingham. “When the devolution agenda is felt by our communities across the country we know it will have succeeded.”
The roadmap gives “welcome substance” to the government’s devolution plans, according to Tom Lloyd Goodwin, deputy chief executive of CLES, the local economic think tank. But he said it must support the wider purpose of devolution: “reducing poverty and inequality, improving living standards and delivering better health outcomes”.
What politicians are saying
“These new financial flexibilities will help to drive the development of Leeds South Bank and Bradford Southern Gateway to deliver thousands of homes, create a better-connected region, and build a region of learning where everyone has the skills they need to succeed.” -Tracy Brabin, Labour mayor of West Yorkshire
“There is a right way to do devolution and a wrong way, so we will have three tests for the government’s plan as it develops. First, does it give councils enough money to fulfil the responsibilities they are being given? Secondly, does it reach beyond mayors to councils and communities everywhere? Thirdly, is it fair, so that those areas that are already struggling do not find themselves with even less?” -Ed Davey, Lib Dem leader
“We have had devolution since the Blair government, and Wales has become one of the poorest parts of the whole of Europe, although it has had serious and real fiscal devolution. If it has been so spectacularly painful for the residents of Wales to have such devolution, why does the hon. lady [Labour MP Seema Malhotra] think it will be so marvellous for people in other parts of the United Kingdom?” - Graham Stuart, Conservative MP for Beverley and Holderness
“This is an important step forward for Lancashire. Securing greater investment is vital if we are to deliver better opportunities, stronger communities and sustainable growth for our residents and businesses.” - Stephen Atkinson, Reform UK leader of Lancashire County Council
“You’d have thought that, after going to the trouble of ousting the last PM, taking his job, and installing a brand-new chancellor, Andy Burnham would be keen to ensure Labour displayed a bit more ambition.” - Ellie Chowns, Greens’ Treasury spokesperson
What happens next
Confirmation over the figures for income tax assignment and getting the remaining mayoral and foundational agreements over the line. But devolution needs to address declining living standards, predicted to fall yet further.
“Devolution must not stop at town halls or combined authorities: power and control must be put into the hands of local communities,” said Yasmin Ibison, senior policy adviser at the Joseph Rowntree Foundation. ■
About the author: Kevin Gopal is a Manchester-based journalist who has returned to freelancing after editing Big Issue North from 2007 until its closure in 2023. He writes regularly for The Lead to untangle the issues facing the UK and also reporting on social justice and other issues across the North of England as part of our award-winning The Lead Local titles.
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