Mayors to retain income tax and business rates under huge transfer of financial powers

The new Prime Minister is set to unveil the biggest transfer of financial powers away from Whitehall, following on from the ambitions former chancellor Rachel Reeves set out earlier in the year.

Mayors will be able to spend a portion of income tax on regional projects such as bus franchising and mass transit from 2028, Andy Burnham will announce today.

The new Prime Minister is set to unveil the biggest transfer of financial powers away from Whitehall, following on from the ambitions former chancellor Rachel Reeves set out earlier in the year.

This will see all mayors be able to retain and spend a portion of business rates from the spring of 2027 and income tax from 2028.

These funds will replace the ring-fenced grants which mayors currently use to fund projects.

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.

"I know what it's like to be ignored by politicians in Westminster. I'm not going to make that same mistake now I'm PM.

"The whole of government will now pull together behind the people and places that desperately need our support. This is how we'll bring back hope and bring power home to you."

The reforms should hand Yorkshire’s mayors greater control over housing, infrastructure projects and employment support.

In particular, it should allow West Yorkshire’s Tracy Brabin to push faster with the £2.5bn tram network for Leeds and Bradford, as the devolution programme will involve “removing Whitehall barriers and speeding up approvals”.

Ms Brabin said: “Giving extra powers and a proportion of income tax to regions means people will be able to see and feel the real benefit of their hard work and where that money is going.

"This will enable us to deliver on our ambitious plans including vital improvements to public transport, providing better skills and employment support so people can fulfill their potential, and building the homes that people need."

Some Tory and Reform mayors have indicated that they would look to give residents a form of tax rebate from the money.

Lord Ben Houchen, the Mayor of Tees Valley, has spoken of this, while Hull and East Yorkshire Mayor Luke Campbell is thought to be considering it.

Lord Houchen 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.”

It is understood that this would be complicated by the fact that mayors would not know how much tax each person in their region pays.

However, a scheme could potentially be created specifically for small businesses or people on Universal Credit.

The Treasury has not yet calculated how much income tax mayors will retain, however the Centre for Cities said it is likely to be in single digits.

Just two per cent of income tax in West Yorkshire would mirror the current funding from grants, while this would rise to 3 per cent in South Yorkshire.

The Government has said it is keen to ensure any inequalities are not exacerbated, and the idea would be that if mayors stimulate the economy they would then generate more money through the tax retention.

Local Government Secretary Angela Rayner said: “This is the first step in our plan to rewire this country and build a better future, where power is no longer hoarded in Westminster but is put back in the hands of local people – where it belongs.

“Our devolution revolution is about bringing an end to the begging-bowl culture of the past, and instead making sure our local leaders have the tools they need to drive the change that communities have been crying out for.

“We need every region to be firing on all cylinders if we want good growth in every postcode, and we will do everything in our power to make that a reality.”