Andy Burnham heralds new devolution era

In a landmark announcement, Prime Minister Andy Burnham has initiated what he describes as the biggest transfer of power from Westminster to local areas in a generation. English mayors will, for the first time, receive a share of both income tax and business rates revenues, marking a significant shift in governance and financial autonomy. The latest changes also aim to empower strategic authorities with greater control over vital areas such as transport, housing, planning, education funding, and employment support.

The new devolution framework will be based on a “local first” principle, which mandates that ministers justify retaining any powers in Whitehall rather than devolving them. Details regarding the specific income tax and business rates arrangements remain pending, as a comprehensive roadmap will be unveiled during the Autumn Budget. Nevertheless, plans are already in place for business rates retention to commence next spring.

The government’s initiative seeks to extend the benefits of devolution across the entire UK, collaborating with devolved governments while also facilitating the establishment of strategic authorities in areas currently without mayors. Dmitrije Sirovica, Partner at the law firm Browne Jacobson, commented on this significant shift: “Handing mayors a direct share of both income tax and business rates revenues represents the most significant step in English devolution in a generation.”

Sirovica further emphasised the urgency of addressing regional inequalities, noting that the UK is the most fiscally centralised country in the G7. He remarked, “Without financial freedom, local leaders are accountable to their communities for outcomes they are not equipped to deliver. The move away from dependence on Whitehall grants and towards funding that rewards local growth is exactly what mayors have long argued for.”

While this new devolution era incorporates additional powers over strategic transport and educational funding, the majority of these authorities were already outlined under the recently passed English Devolution and Community Empowerment Act. The introduction of the Overnight Visitor Levy Bill also allows mayors to implement a framework for collecting tourist taxes.

The Prime Minister’s priority to further the 'Manchesterism' model on a national scale presents a strategic opportunity. Sirovica stated, “Business rates retention as soon as next spring, in particular, brings a huge opportunity for incentivising strategic authorities to invest in local economic growth.” Such incentives should support local economies, as illustrated by the tourist taxes already generating significant revenue in cities like Liverpool and Manchester.

However, strategic authorities are eager for details surrounding the full income tax roadmap, particularly regarding budget flexibility for mayors to address health initiatives through educational spending. This flexibility is critical for enabling a shift from reactive to preventive measures in healthcare and welfare.

While the government asserts its ambition to spread devolution benefits to the devolved nations, tangible actions are necessary. Sirovica warns, “These governments may feel wary that England remains the only show in town for devolution right now.” He points out that some of the most deprived communities are located in the devolved nations, underscoring the need for a credible system for accessing equivalent resources.

A commitment to devolution in principle is a positive step forward; however, Sirovica concludes that a detailed roadmap for the devolved nations is essential for meaningful progress, just as one is anticipated for English mayors at the upcoming Budget.