The UK's highly centralised fiscal system, where central government raised a substantial 91.8% of overall revenues in 2023 – dwarfing the OECD average of 53.2% – may be on the cusp of significant change. Andy Burnham, the Mayor of Greater Manchester, is reportedly considering a move towards devolved income tax across Britain, a proposal that could fundamentally alter how your earnings are taxed depending on where you live.
This consideration follows discussions with a senior adviser and aligns with Burnham's long-held belief that the UK tax system is "structurally unbalanced." He argues, "We over-tax labour, people's work, and we under-tax people's assets." While Burnham has pledged to broadly honour Labour's manifesto commitments not to increase national income tax, VAT, or employee National Insurance, regional devolution could open the door to localised adjustments.
The Precedent: Scotland and Wales
Fiscal devolution is not entirely new to the UK. Scotland, for instance, has exercised powers to set its own income tax rates and bands on non-savings, non-dividend income since April 2017. This has led to a more progressive five-rate schedule for 2024-25, distinct from the rest of the UK. Income tax on savings and dividends, however, remains reserved to the UK Government.
Wales also gained powers over Welsh rates of income tax in April 2019, representing the first 10p in the pound for UK Government tax bands. However, the Welsh Government has, to date, kept its rates aligned with those in England and Northern Ireland, and lacks the power to change thresholds or create new bands.
Regional Disparities and the Drive for Change
The push for greater regional fiscal autonomy is underscored by significant economic disparities across the UK. In 2023, Gross Disposable Household Income (GDHI) per head ranged from a high of £35,361 in London to a low of £19,977 in the North East, against a UK average of £24,836. Proponents argue that allowing regions more control over taxation could incentivise local growth and address these imbalances.
Indeed, the think-tank Re:State has even proposed that Mayoral Strategic Authorities (MSAs) could retain 2.5p of income tax from residents in their areas, directly linking local revenue to local economic performance.
Government's Roadmap for Fiscal Devolution
This regional discussion is not happening in a vacuum. Chancellor Rachel Reeves announced on March 17, 2026, that a "roadmap for future fiscal devolution" will be published in the 2026 Budget. This roadmap is set to outline plans to give regional leaders control over a share of some national taxes, focused on "sharing and retaining a portion of existing revenues." Reeves described these reforms as a "permanent transfer of power and resources" and a "genuine break with the past."
What this means for you
Should devolved income tax powers be implemented in your region, you could find yourself subject to different income tax rates and bands than those in other parts of England or Northern Ireland, similar to the current situation in Scotland. This would primarily affect your earnings from employment, self-employment, pensions, and property income. It would necessitate a careful understanding of your local tax regime, especially if you move between regions or have income streams from different areas.
But there are risks
While advocates point to potential benefits in local accountability and economic development, a more fragmented income tax system could introduce complexity. Businesses operating across regional boundaries might face increased administrative burdens, and individuals could see greater disparities in their take-home pay simply by virtue of their postcode. HMRC already identifies Scottish taxpayers with an 'S' flag and Welsh residents with a 'C' flag; a wider devolution would likely expand this system.
What to do right now
For now, the UK's income tax system remains largely centralised for England and Northern Ireland, with specific arrangements for Scotland and Wales. However, it is prudent to monitor the upcoming 2026 Budget for details of the proposed fiscal devolution roadmap. Regardless of future changes, ensuring your savings are managed tax-efficiently remains crucial.
Consider utilising tax wrappers such as a Cash ISA for tax-free savings, or a Lifetime ISA if you are a first-time buyer under 40, which offers a 25% government bonus on contributions up to £4,000 per year (a potential £1,000 annual bonus). Remember your Personal Savings Allowance: basic rate taxpayers can earn £1,000 in interest tax-free, while higher rate taxpayers have a £500 allowance. Interest earned above these thresholds on standard savings accounts is subject to tax.
When effective
The specific timeline for any new devolved income tax powers for English regions is not yet set, but the Chancellor's roadmap is expected in the 2026 Budget. Any legislative changes would then follow, likely taking effect in subsequent tax years.
Where to get help
For personalised advice on your financial situation and tax planning, it is always recommended to seek independent financial guidance.
Sources
- The Telegraph — Andy Burnham considering devolved income tax across Britain, says senior adviser
- The Guardian — Burnham adviser calls for billions of pounds in borrowing for infrastructure
- Chancellor Rachel Reeves (March 17, 2026) — Statement on fiscal devolution roadmap
- Office for National Statistics (ONS) — Regional Income Disparities (GDHI per head 2023)
- Office for Budget Responsibility (OBR) — Independent forecasts for Scottish and Welsh income tax
- HM Revenue & Customs (HMRC) — Administration of Scottish and Welsh income tax
- Re:State think-tank — Proposal for Mayoral Strategic Authorities
This is not financial advice. Seek independent financial guidance. Interest on standard accounts may be subject to tax above your Personal Savings Allowance.