Key Highlights

  • The Chancellor's 'fiscal devolution roadmap' (March 2026) opens the door to English mayors receiving a share of income tax.
  • A leading model would give mayors around 2.5p of basic-rate income tax without changing what residents pay, incentivising local growth.
  • The key risk is a 'two-tier England' where prosperous regions pull ahead; equalisation mechanisms will be decisive.

A quiet constitutional shift

England is among the most fiscally centralised of the large advanced economies, with the Treasury collecting and allocating the overwhelming majority of tax revenue. That may be starting to change. In March 2026 the Chancellor, Rachel Reeves, committed to developing a 'fiscal devolution roadmap', opening the door to transferring a share of national tax revenues to the mayors of England's strategic authorities. Income tax, the single largest revenue source, is explicitly among the taxes under examination.

The idea sits within a broader devolution agenda underpinned by the English Devolution and Community Empowerment Act 2026, which has expanded the powers of combined authorities. Handing mayors a stake in the taxes generated in their areas would mark a significant, if gradual, shift in how England is governed and financed.

The political energy behind the push has come substantially from England's directly elected mayors, among them Greater Manchester's Andy Burnham, who have argued that they cannot be held accountable for local growth without meaningful control over local resources. Their case is that the current begging-bowl model, in which regions bid to Whitehall for pots of funding, is inefficient, unpredictable and ill-suited to long-term planning.

How income-tax sharing might work

The most discussed model, advanced by the think tank Re:State, would allocate mayors a fixed slice of the income tax already collected locally, for example 2.5p of every pound of basic-rate tax, with the remaining 17.5p flowing to central government. Crucially, this is revenue sharing rather than a new tax: residents would pay exactly the same amount, but a defined portion would be retained and spent regionally rather than pooled nationally.

The attraction for mayors is that it gives them a direct financial stake in local economic success. If a region grows its economy and payroll, its retained tax take rises, creating an incentive to prioritise growth, skills and infrastructure. Advisers have suggested business-rates devolution is the more probable first step, with income-tax sharing a plausible later phase.

The case for an economic revolution

Proponents argue that fiscal devolution could help address England's stark regional inequalities. Decades of centralised decision-making have, in this view, left decisions about local transport, housing and skills too distant from the places they affect. Giving mayors both the powers and the revenue to act could unlock investment tailored to local strengths, from advanced manufacturing in the North to life sciences clusters elsewhere.

International comparisons are often cited: many successful regional economies abroad enjoy far greater fiscal autonomy. If devolution genuinely raises regional growth rates, the prize is not only fairer distribution but a larger national economy, precisely what a country growing at only around 1.4% badly needs.

The 'two-tier England' warning

The central risk is divergence. Because England's economic geography is so uneven, a system that lets areas keep locally raised revenue would generate very different sums in prosperous and struggling regions. Without careful equalisation, wealthier areas could pull further ahead while poorer ones, with weaker tax bases, fall behind, entrenching rather than reducing inequality. Critics have warned this could create a 'two-tier England'.

There are also concerns about complexity, accountability and the Treasury's instincts. Analysts note that Whitehall still tends to treat fiscal autonomy as something regions must earn rather than a principle of good government, which could limit how far and how fast real power is transferred.

Lessons from Scotland, Wales and abroad

England can draw on ready-made examples. Scotland already sets its own income tax rates and bands, and Wales has partial income-tax powers, giving more than a decade of evidence about how devolved tax powers work in practice, including the political scrutiny that comes when a devolved government is directly accountable for the taxes it levies. Those experiences show both the accountability benefits and the administrative complexity of running parallel tax regimes within one country.

Internationally, many federal and decentralised systems, from Germany to the United States, combine local revenue-raising with equalisation transfers that channel money from richer to poorer regions. The lesson is that fiscal devolution rarely works well without a deliberate mechanism to prevent regional divergence from spiralling. England's challenge is to import the growth-boosting incentives of local revenue retention while designing in the redistribution needed to keep the union of English regions cohesive.

What it means for businesses, investors and households

For businesses, greater local control could mean more responsive planning, infrastructure and skills provision, but also the prospect of navigating more varied local regimes. For investors, fiscal devolution could reshape the case for regional infrastructure, property and regeneration, particularly in city-regions with ambitious, well-resourced mayors. Places able to align transport, housing and business support around a coherent growth plan may become more attractive destinations for capital.

For households, the immediate effect of a revenue-sharing model would be negligible, since tax bills would not change, but the longer-term stakes are real: whether devolution delivers better local services and stronger regional economies, or simply adds a layer of complexity. The roadmap is still being drawn, and much depends on the detail, especially the mechanism for supporting weaker regions. Handled well, it could rebalance the economy; handled poorly, it could deepen the divides it aims to close.