The key to fiscal devolution which could fund West Yorkshire trams, according to experts
Devolving income tax would allow mayors to borrow against future revenues to fund major projects like the West Yorkshire Mass Transit and Northern Powerhouse Rail.
The key to Andy Burnham’s fiscal devolution announcement is the certainty of funding which will allow mayors to borrow against future revenues to fund big infrastructure projects, experts have said.
The money raised by mayors through devolving a portion of business rates in 2027 and income tax in 2028 is likely to mirror current government grants.
Centre for Cities estimates it will be around 2 per cent of income tax for West Yorkshire and 3 per cent for South Yorkshire.
The difference going forward, experts say, is these funds will not be ring-fenced, and therefore provide certainty around financial settlements going forward.
This would allow mayors to borrow against this to fund major projects like the West Yorkshire Mass Transit and Northern Powerhouse Rail.
Henri Murison, chief executive of the Northern Powerhouse Partnership, said: “The extension of business-rate retention from spring 2027 will deliver meaningful fiscal devolution across all the places stretching from the Northumberland border with Scotland to the Wash in Lincolnshire.
“This will give metro mayors greater scope to retain more of the dividend generated by growth in their regions, building on mechanisms already available today in places including Greater Manchester, Tees Valley and Leeds.
“Allowing regions to retain a share of income tax revenues will go one step further.
“Under the proposals, individual workers and employers would not pay more income tax or National Insurance, unlike under the Scottish system, but mayors would still be able to borrow against or commit future revenues to help finance privately built and delivered infrastructure.
“This could support projects such as a tram system in West Yorkshire or enable the North to raise a contribution towards a new railway line between the Midlands and Crewe, in a way that has never previously been possible in England.
“By leveraging private investment alongside devolved revenues, these tools can have a significantly greater impact and learn the lessons of the success of the Manchester growth model.”
Mirte Boot, head of IPPR North, explained that the UK is currently the most fiscally centralised country in the G7.
She said: “Fiscal devolution is the key that unlocks the economic benefits of devolution, spurring on mayors and councils to invest in the transport, housing, and infrastructure that drives growth.
"The gap between London and the South East and the rest of England costs the country £30bn a year, and saps the potential of people and places across the North and the rest of the UK.
“The chief cause of this is centralisation - England is the most fiscally centralised country in the G7.
"For every £1 paid in tax, 96p goes straight to the Treasury. Local leaders know what their places need to drive 'growth in every postcode' - but until now they didn’t have the powers to make it happen.
“But fiscal devolution must pass two tests: mayors need the freedom to borrow against future revenues to fund long-term infrastructure, as London did with the Elizabeth line, and some of the proceeds must also be shared with slower-growing places."