Burnham’s Fiscal Devolution drive: a step or a leap to decentralising power?

Introduction

The Prime Minister has made devolution a central pillar of his agenda, and today’s announcements, ten days into his premiership, suggest he is serious about that.

Today’s announcements offer a transformative step in that direction – including changes LGIU has campaigned for over many years. Crucially, the government has now set dates for its ambitions, rather than leaving them to a future roadmap. Another tick on the scorecard.

While much of this agenda had already been set in motion by former Chancellor Rachel Reeves’ Mais Lecture, it is clear that the Prime Minister has accelerated “Rewiring The State”. Although further details are to come at the Autumn Budget and an accompanying White Paper, today’s Cabinet Statement confirms its transformative potential.

Piecing the press release and Cabinet Statement together, this is largely a Mayor’s settlement on income tax, but with key local government implications for the expansion of strategic authorities (SA) and business rates. 

If Government follows through on this, this is a leap towards a genuinely rewired and transformative state. What happens now with the Autumn White Paper is key to answering the questions the APPG on local government’s fiscal devolution inquiry put on the table. 

What’s been announced?

Government has said it will write to councils setting out the next steps as early as today (Friday 31 July) or Monday (3 August). The Government has announced a series of pivotal changes:

1. A timetable for Universal SA coverage. Every area is to be established as an SA by the end of 2027 (likely the Devolved Priority Programme), with full coverage by the end of 2028 (Tranche 3 of Local Government Re-organisation. The Government will not impose Mayors, but offers a choice between models, with the mayoral model preferred and carrying enhanced powers.
2. Income tax retention for Mayors. Mayors gain their first-ever share of income tax and business rates revenue, tied to local economic growth. This is a mayoral power with details to be confirmed at the next Spending Review, and receipts retained locally from April 2028.
3. Business rates retention. Mayors begin retaining a greater share of locally generated business rates starting in April 2027. Local councils and strategic authorities will both benefit from increased business rates retention. Some places already benefit from 100 per cent retention (Cornwall and Greater Manchester, for example).
4. Four new Established Mayoral Strategic Authorities. Cambridgeshire and Peterborough, East Midlands, West of England, and York and North Yorkshire. Mayoral elections confirmed for Cumbria, Cheshire and Warrington for May 2027.
5. Coterminosity. By the end of Parliament (9 July 2029), local police units will align with local council boundaries. Regional police forces, fire & rescue services, and Integrated Care Boards (ICBs) will align with Strategic Authority boundaries.
6. Accountability. Chief Executives of mayoral strategic authorities (MSAs) will become Local Accounting Officers with a strengthened role for the Local Audit Office.
7. New local powers. Rail and bus integration; planning and regeneration powers to unlock stalled housing sites; faster approval of local transport/tram/metro schemes (approval threshold raised to £500m); mayoral control over 16–19 funding and employment support; support for local industry and investment with Good Growth Funds.
8. Full White Paper due alongside Autumn Budget, with the White Paper covering legislation, public service geography alignment, and a timetable for new powers. Details of the differences in powers between MSA’s, SA’s and local authorities to be set out then. 
9. Separate proposals for Scotland, Wales and Northern Ireland are reportedly being developed, according to the Financial Times, recognising that local government policy is a devolved matter.

What could this mean for councils?

Rolling out more income tax retention

The Government has committed to “income tax retention”, which, on the surface, suggests it may go beyond simply assigning a proportion of Income Tax. Under a retention model, for example, mayoral strategic authorities (MSAs) would keep a share of the additional tax revenues generated in their areas. Designing such a system is not straightforward, as the experience of Greater Manchester’s Earn Back model illustrates. How will the Government measure locally generated growth if more receipts are to be retained over time? Will it establish equalisation measures to ensure that retention does not simply widen disparities between different tax bases, and what form will those measures take?

Business rates, a welcome move.

Business rates retention now extends to councils as well as MSAs from April 2027. The bespoke business rates arrangements across England mean that some areas, such as Cornwall and Greater Manchester, already retain 100% of their business rates. 

The government’s recognition that strategic authorities are only as strong as the councils that constitute them is a welcome move. Pledging to retain more of the business rates locally rather than rely on central government grants, and to pursue future reforms to the highest-cost services (such as adults’ and children’s social care), speaks directly to LGIU’s research on the financial sustainability of local government.

Expanding the funding envelope to more MSAs

There had been a widespread expectation that the Integrated Settlement would eventually be superseded by an Income Tax model, as I have previously examined for the LGIU. Unlike the Integrated Settlement, this new fiscal autonomy has been suggested to be not confined to the seven MSAs with Established status. As a result, the changes would not be – at first glance – a like-for-like replacement, with 14 MSAs benefitting. 

Will the Government therefore devolve a larger funding envelope than it did through the Integrated Settlement, to accommodate MSAs that had not been beneficiaries of the Integrated Settlement? 

More broadly, how will Income Tax interact with existing funding streams: will the Government take alternative steps to ensure that the settlement provided to MSAs is fiscally neutral? And does the focus on all MSAs (rather than Established MSAs) signal the beginning of a shift away from the more conditional, ‘earned’ model of devolution that has characterised English devolution to date? 

IFS analysis from David Phillips is illustrative of this. Fully replacing the Integrated Settlement for the ‘Established’ MSAs in the North and Midlands would require allocating between 6% and 9% of local income tax revenue. For Greater London, less than 1% would be needed to cover the equivalent settlement.

Discretion over devolved funding

Political responses have varied across parties. Conservative and Reform mayors have been more cautious, with The Times reporting that some are considering whether additional government funding could be used to provide local tax rebates. At this stage, it is not clear whether that is possible, but it raises important questions. To what extent will mayors have discretion over the use of devolved funding, and what conditions, if any, will the Government attach to it? Will, as a result of fiscal devolution, England’s MSAs begin to diverge in fiscal policy? Will it give those who do use the flexibility a greater scope to invest in public services, which have, to date, not been a priority for MSAs? 

The different responses to the announcement appear consistent with a broader divergence, with some of the same mayors indicating that they would not introduce an Overnight Visitor Levy. As the power to introduce the levy rests with mayors, while it has not yet been determined whether local government will retain a proportion of the receipts, differing mayoral approaches to fiscal devolution could have direct implications for local government finances and the resources available to support local services.

Nation-wide devolution by the end of 2028

There is an important question of legitimacy. It could become increasingly difficult to make the case for further devolution if its benefits accrue in only parts of England, particularly the major city-regions. 

The dated, universal timetable for SA coverage by the end of 2028 goes a considerable way to answering that concern in principle. What is key is understanding the division of powers within the non-Mayoral Foundation Strategic Authority model. For authorities already managing the demands of local government re-organisation, establishing new MSAs will also bring additional administrative, political and organisational pressures. 

What is the role of local government?

This is the most significant devolution offer in a generation. The next test is making sure every part of England, and every tier of government, gets to share in it

The detail in a White Paper in Autumn may well change what role local government plays in fiscal devolution. And the recent machinery of government changes pose a new challenge in this respect. In creating a new No.10 North and transferring responsibility for devolution and local economic policy from the Ministry of Housing, Communities and Local Government, will the distance between devolution and local government (which will remain MHCLG responsibility) increase?

More broadly, while the Government’s direction of travel is emerging, given the Prime Minister has been in post for a fortnight, the APPG for Local Government’s position that MSAs should not be the sole beneficiaries of fiscal devolution is pertinent. A successful system of fiscal devolution requires supporting MSAs to take action to support their economies, while also supporting local government to improve their resilience and deliver public services.

What comes next?

The announcement adds depth to fiscal devolution, but the Autumn White Paper and fiscal devolution roadmap must turn commitment into a working system that empowers local government. 

As our timeline below illustrates, the months ahead present an opportunity for the Government to build a fiscal settlement grounded in fairness and long-term stability. That requires looking beyond the important role that MSAs play in driving economic growth and recognising that fiscal devolution must also support the delivery of public services. 

Ultimately, the success of devolution is still tied to the growing crisis of demand outstripping resources in children’s and adult social care services. Councils need clarity, coherence, a long-term plan and a ‘new covenant’. Today moves us closer to this, but the questions of accountability and equalisation are key.

Government should use the momentum behind fiscal devolution as a catalyst for wider reform of local government finance, modernising England’s outdated and fragmented system of local taxation. Council tax is the obvious starting point, and while the Government has ruled out abolishing it, there remains significant scope to make it fairer, more up-to-date and better aligned with the needs of local government.

Previously, the Government had referred only to a ‘roadmap’. The shift from a ‘roadmap’ to a full Devolution White Paper continues to point towards primary legislation. That should provide local government with a significant opportunity to shape the next phase of fiscal devolution and the legislative framework that underpins it.

We hope this finally signals a government serious about decentralising power, and we look forward to working with the government and our members to give it life.