Devolution tax plan 'can drive growth, but must pass acid test', business leaders warn

Business bosses have welcomed plans to hand English mayors a tax boost – but cautioned “every part of the country must benefit from the changes”.

Prime Minister Andy Burnham has unveiled a blueprint to allow regeneration leaders to retain a share of income tax and business rates in their respective areas.

The new Labour leader says the move will “make good” on his pledge to “take power out of Westminster and carry it into every postcode in the country”.

Several parts of England already have mayors – including Greater Manchester, the Liverpool City Region, the North East, Cambridgeshire and Peterborough, and South Yorkshire including Rotherham and Sheffield – which have powers over issues such as transport, skills and infrastructure planning.

The reforms are expected to be officially announced in a white paper later this year, with ministers set to retain an equalisation system, so areas where less tax is collected continue to receive financial support.

However, the Conservatives say they doubt the reforms will help English regions to flourish, while the Liberal Democrats have warned devolving tax revenues to mayors would “leave behind large swathes of England” that do not have a mayoral authority.

But business leaders were more positive, though their enthusiasm was caveated with caution that success would only come from a joined-up approach.

Kate Shoesmith, director of policy at the British Chambers of Commerce, said: “Putting more decision-making closer to local economies can help unlock growth.

“But it must be focused on the practical barriers businesses face every day; from skills and transport to infrastructure and planning.  

“The acid test will be whether firms in communities across England, both within and outside strategic authorities, see stronger conditions for trade, investment and productivity.   

“This can only happen if business insight is built into local decision-making from the start, not an afterthought when the main decisions have already been made.  

“Mayoral strategic authorities can be powerful engines for delivery where they have the expertise, funding and accountability to succeed.  

“But around half of England still sits outside these arrangements, and they cannot be left behind.

“And while England is in focus for this announcement, we must apply the same principles across the whole of the UK.”

Mirte Boot, head of think tank IPPR North, said the reforms would need to meet two key financial checks.

She added: “Local leaders know what their places need to drive ‘growth in every postcode’ – but until now they didn’t have the powers to make it happen.

“But fiscal devolution must pass two tests: mayors need the freedom to borrow against future revenues to fund long-term infrastructure, as London did with the Elizabeth line, and some of the proceeds must also be shared with slower-growing places.”

Paul Britton, chief executive of Thames Valley Chamber of Commerce, which represents businesses across Berkshire, Buckinghamshire, Oxfordshire and Swindon, welcomed the moves, but reiterated the warning about pre-devolved areas being neglected.

He said: “Yet to be devolved areas, such as the Thames Valley, which supports jobs, suppliers and prosperity across the whole of the UK, should not be put on the back burner while administrative structures are being agreed.” 

John McCabe, chief executive at the North East Chamber of Commerce, welcomed the announcement.

He said: “Income tax generated today by people from Berwick to Barnard Castle is retained in Whitehall for London-based leaders to decide what to do with it.

“That has to change. 

“More of the wealth created in our region should be retained here and invested according to local priorities. 

“The next step is for mayors to work closely with business and other partners to agree on how best to use the new funds at their disposal.

“We hope this is the first step in a wider, far-ranging review of this outdated tax on business.” 

Dr Stuart Patrick, chief executive of Glasgow Chamber of Commerce, added: “This announcement reinforces the need to accelerate city-region devolution. 

“We stand ready to work with the UK and Scottish Governments to ensure city regions have the powers and funding needed to drive productivity, attract investment and create high-quality jobs.”

Tracy Harrison, chief executive at Sunderland-based Northern Housing Consortium, added: “The Prime Minister’s announcement to take devolution further will build on the benefits we are already seeing in the North.

“We have consistently highlighted to the Government and civil servants that one-size-fits-all, centralised funding pots do not meet the diverse needs of Northern communities.

“It has been confirmed there will be greater devolution of the Social and Affordable Homes Programme.

“This is welcome in principle, but it is vital it does not delay delivery of much-needed new homes.”

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