Fiscal devolution: an inflection point

That reluctance has often been visible in what governments chose not to say. Neither the English Devolution White Paper nor the earlier Levelling Up White Paper even used the phrase ‘fiscal devolution’. The omission mattered. It suggested that while governments were willing to devolve structures, they remained hesitant to devolve the financial powers needed to make reform sustainable.

That now appears to be changing.

Recent developments suggest fiscal devolution is moving closer to the mainstream of government thinking. That is why the All-Party Parliamentary Group on Local Government is launching an inquiry into fiscal devolution: to examine whether this shift marks a genuine turning point, and what reforms should come next.

The first signal is the proposed Visitor Levy. Such levies are common across Europe and already exist closer to home in Wales and Scotland, where devolved administrations have chosen to empower local authorities to implement them. In England, cities such as Manchester and Liverpool have pursued workarounds through Business Improvement District models, raising funds from local businesses to reinvest in town centres, high streets and visitor destinations.

The second, and more significant, development is the Chancellor’s commitment in her Mais Lecture to publish a fiscal devolution roadmap at the Autumn Budget.

That commitment matters and suggests Whitehall increasingly recognises that England’s highly centralised model of government is no longer sufficient if local leaders are expected to drive growth, reform public services and improve outcomes for their communities. 

But the parameters of reform have already been set. Ministers are more comfortable assigning local areas a share of existing national taxes than granting authorities the power to create new taxes or vary rates themselves. In practice, that could mean places retaining part of the revenues generated from taxes such as Income Tax, but without control over thresholds or rates.

That is a limitation. Genuine fiscal autonomy means not only sharing revenues, but giving democratic institutions meaningful choices over how those revenues are raised.

Even so, establishing the principle that locally generated tax revenues should more directly benefit local areas is an important shift. It provides a foundation on which future reforms can be built.

The politics behind this moment are also important. The Government’s overriding priority is economic growth. It is embedded through the Government’s missions to deliver higher living standards in every part of the United Kingdom by the end of the Parliament. Ministers are understandably in search of policies that can raise productivity and strengthen local economies. In that context, fiscal devolution is being viewed primarily as an economic tool.

There is a strong case for that. When local leaders have a direct stake in the proceeds of growth, they have stronger incentives to invest in transport, housing, regeneration and skills. International evidence from the OECD suggests that places with greater tax autonomy often perform better economically than those reliant on spending powers alone.

But growth should not be the only lens through which reform is viewed.

Fiscal devolution can also improve resilience. English councils remain heavily dependent on grants and settlements determined in Whitehall, leaving them exposed to short-term policy shifts and changing national priorities. A broader and more predictable local revenue base would support longer-term planning and better decision-making.

It can also strengthen accountability. Too often, local leaders are blamed for services shaped by funding decisions they do not control. When responsibility for raising revenue is better aligned with responsibility for spending it, the public can more clearly judge who is accountable for results.

The forthcoming roadmap should therefore be judged not only by how far it devolves existing national taxes, but by whether it sets a credible path toward greater autonomy in future, with a focus broader than economic growth. 

A cautious first phase is understandable. But the Government has been presented with a rare window of opportunity to create a more mature settlement in which both strategic and local authorities have the powers, incentives and financial stability needed to shape their own future.

The APPG for Local Government’s inquiry will explore how ministers can seize that opportunity, which fiscal tools should be considered, and which pitfalls should be avoided. If this is truly an inflection point, the choices made now will shape English devolution for years to come.

Jack Shaw is Director of Groundwork Research, which is on a mission to bring policy-makers and practitioners together.