English mayors will receive a share of both income tax and business rates revenues for the first time in what Prime Minister Andy Burnham has called the biggest transfer of power from Westminster to local areas in a generation.

New controls will also be handed over to strategic authorities for transport, housing, planning, 16-19 education funding and employment support.

The changes will be underpinned by a new “local first” principle requiring ministers to justify why any power should remain in Whitehall rather than be devolved. 

Full details of the income tax and business rates arrangements will not be confirmed until a roadmap is published at the Autumn Budget, with business rates retention beginning from next spring. 

The government has said it intends to extend the benefits of devolution across the whole of the UK in partnership with the devolved governments, while also committing to support areas without a mayor to establish strategic authorities and gain greater local control.

Dmitrije Sirovica, Partner in the government team at UK and Ireland law firm Browne Jacobson, said: “Handing mayors a direct share of both income tax and business rates revenues represents the most significant step in English devolution in a generation. Given the UK’s huge regional inequalities and the fact it remains the most fiscally centralised country in the G7, the instinct to fundamentally rewire how money flows from Whitehall to local leaders is the right one.

“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 the government is keen to push the creation of new devolved powers to strategic authorities that give mayors control over rail and bus services, large transport schemes such as trams and metros, and post-16 skills funding, most of these already existed under the recently passed English Devolution and Community Empowerment Act. The Overnight Visitor Levy Bill, also introduced under Sir Keir Starmer, also creates a legal framework for English mayors to collect tourist taxes.

“What this so-called ‘new era of devolution’ under Andy Burnham does show, though, is the importance of having a figurehead who wants to put this front and centre of his economic growth mission, with the Prime Minister’s eagerness to roll out the benefits of ‘Manchesterism’ nationally enabling him to accelerate some of this legislation.

“Business rates retention as soon as next spring, in particular, bring a huge opportunity for incentivising strategic authorities to invest in local economic growth as this will increase revenue streams that can continue to be recycled back into their communities. This should complement new tourist taxes, which have already raised roughly £10m and £3m respectively in Liverpool and Manchester in the first year of an innovative model that allowed those cities to collect levies via business improvement districts. 

“Strategic authorities will be keen to hear more details on the full income tax roadmap, however, and questions remains over whether he is prepared to remove ringfencing around budgets so that mayors are given flexibility to make health interventions via education spending, for example. Such freedoms will be vital to shifting from cure to prevention in both healthcare and welfare.

“Whitehall says its ambition is to extend these devolution dividends to the devolved nations but until intent is matched by substance, these governments may feel wary that England remains the only show in town for devolution right now. 

“Some of the most socially deprived communities in Britain are in the devolved nations, and given how essential they are to strategic UK-wide initiatives such as green energy and AI, government must either be prepared to delegate more funding streams to the devolved administrations for onward distribution, or create a credible mechanism by which those areas can access equivalent resources directly. 

“A commitment in principle is a start but a roadmap for the devolved nations, just as there will be one for English mayors at the Budget, is required to give this any weight.”