Millions of pounds in annual business rate revenues are being considered by ministers as a potential transfer to English regional mayors, sparking debate over the merits of devolving tax income control. The move is part of an overarching strategy aimed at granting local authorities greater autonomy and enabling them to better serve their communities.
The government's plans for business rates devolution have been met with interest from hospitality businesses, which have recently voiced concerns about the impact of the tax on local economies. Secretary of State for Local Government Steve Reed has confirmed that ministers are actively exploring proposals to transfer some business rate income to regional mayors, a move expected to be a key feature of the upcoming Budget.
The devolution plans, while still in their infancy, would need to include an equalisation mechanism to prevent exacerbating regional inequalities. This would ensure that areas with lower economic starting points are not disadvantaged by such a transfer. However, the system could also be designed to incentivise regions demonstrating faster economic growth or providing better support for local businesses, creating a dynamic framework for regional development.
The Chancellor's Mais Lecture earlier this year highlighted plans to give regional leaders control over certain national taxes. Officials are now examining various avenues for tax devolution, including not only business rates but also components of income tax. This ambitious programme reflects the government's broader push to decentralise power and address significant regional economic disparities.
The financial implications of such a transfer could be substantial, with £26.4 billion in annual business rate revenues up for consideration. Even a percentage of this revenue would provide a significant boost to mayoral budgets, enabling greater local investment and service provision. The Mayor of London's budget, exceeding £22 billion annually, serves as an example of the scale of resources that could be transferred.
Devolution experts argue that such reforms have the potential to fundamentally alter the country's tax system and operational framework, providing local areas with long-term certainty necessary for investment, planning, and service delivery. ThinkLabour's director of devolution policy, JP Spencer, noted that transferring revenue from income tax or business rates would "alter the fabric" of the UK's public finances.
The implications of this proposal will likely be subject to intense scrutiny in the coming weeks, as ministers seek to balance competing interests and priorities in their plans for decentralisation. While proponents argue it would enable local leaders to respond more effectively to regional needs, others may raise concerns about the potential risks and complexities involved in such a significant overhaul.