England’s regional mayors will be able to break out of the “death grip of the Treasury” by borrowing to invest in big projects under “transformational” plans to shift power out of Whitehall.
For the first time, mayors will keep a share of income tax generated in their area from 2028, as well as business rates totalling tens of millions of pounds by April 2027.
These will replace existing grants rather than being additional money, but local leaders said no longer relying on ringfenced Treasury handouts would “transform” their funding.
Oliver Coppard, the Labour mayor of South Yorkshire, said: “It’s really important because it gets us out of the death grip of the Treasury and gives us that long-term certainty around income.”
Andy Burnham will announce the measures on Friday as part of what he called “the biggest transfer of power from Westminster in a generation”.
He said: “Under our plans, more of the taxes raised in a community will stay in that community. Soon, every local leader will have the power and resources to improve public transport, build homes and create jobs.
“I know what it’s like to be ignored by politicians in Westminster. I’m not going to make that same mistake now I’m PM.”
Under a new “local first” principle, Burnham will instruct ministers to justify why powers should remain in Whitehall rather than be devolved.
As well as greater control over technical education for teenagers, announced by the government this week, some of those close to the prime minister have called for mayors to oversee schools, GPs and childcare providers through health and education commissioners – a similar role to that played by police and crime commissioners.
No 10 said Britain’s civil service of 520,000 would become “smaller and more strategic” as decision-making moves out of London, where one in five of these officials are based.
England’s directly elected mayors, who control areas spanning three-quarters of the population, would be able to use the revenue generated from business rates and income tax as they wish, including tax breaks for important industries or rebates to residents.
However, experts said one of the most significant consequences was that it would allow combined authorities to take out 30-year loans against their projected income to fund major projects that previously needed Treasury approval.
Mayors said they were currently prevented from funding huge initiatives on housing and transport because they could not take out private loans on the basis of one-year funding settlements from Whitehall.
Henri Murison, the chief executive of the Northern Powerhouse Partnership, said the change “completely transforms” what combined authorities would be able to do.
He said the ability for mayors to borrow against future income could unlock huge transport projects such as an underground station at Manchester Piccadilly.
It is not yet clear what proportion of income tax or business rates would be retained by combined authorities, with officials still working on the numbers. John Healey, the chancellor, is expected to set out the detail in the autumn budget.
Ben Houchen, the Conservative mayor of Tees Valley, suggested he would use the income tax to hand out tax rebates to local people.
However, it is understood that this would be technically extremely difficult given mayors do not know how much individuals have paid in tax. Also, because the income tax revenue is not additional money for mayors but is replacing government grants, it is more likely to be spent on long-term projects than giveaways to residents.
Ministers are considering ways to ensure less economically productive areas such as Humberside and north-east England are not left behind. If mayors received 2.5% of the 20p basic rate of income tax, London would get £2.3bn in 2026-27 while Hull and East Yorkshire would get £135m, according to a report last month by the thinktank Re:State.
The thinktank IPPR North described the move as “the most significant shift in how England is funded in a generation”.
Policy experts previously said rushing ahead with fiscal devolution risked creating a “two-tier England”, potentially leaving behind roughly a quarter of the country’s population that did not have a mayoral authority.
The government is planning to encourage these areas – spanning millions of people in Dorset, Somerset, Oxfordshire, Gloucestershire, Wiltshire and parts of Kent – to form mayoral authorities in order to benefit from greater autonomy over their funding.
Since 2024, only two combined authorities – Greater Manchester and West Midlands – have been able to keep all of the business rate income generated in their areas.
In Greater Manchester, this amounted to £100m in 2024-25, the first year of operation. Three-quarters was retained by each of the 10 local authorities and £25m was kept by the mayoral authority and spent on projects.
