Prime Minister Andy Burnham has unveiled plans to transfer unprecedented financial powers from Westminster to local leaders.
The policy will grant English city region mayors a direct share of income tax revenue and business rates.
Under the new measures, mayors will begin retaining a portion of local business rates starting in April 2027.
A direct share of local income tax receipts will follow in April 2028.
These reforms replace traditional ringfenced Treasury grants. Overall national income tax rates will remain unchanged.
The changes represent the largest shift of authority and funding from central government in a generation. They aim to end decades of centralized control in London.
Expanded Local Powers
Strategic authorities will gain expanded control over transport, housing, employment support, and 16-to-19 education funding.
The approval threshold for local transport infrastructure projects will rise from £200 million to £500 million before requiring Whitehall authorization.
Whitehall departments will now be required to justify why specific powers should remain in London under a new "local first" principle.
Government figures show the UK currently collects just 5.8% of national taxes at a local level, ranking lowest among G7 nations.
By comparison, local tax collection reaches 20.4% in France, 36% in Japan, and 45.7% in the United States, according to the OECD.
Burnham framed the policy as a direct fulfillment of his pledge to decentralize national decision-making.
"Under our plans, more of the taxes raised in a community will stay in that community," he said.
"I said we'd take power out of Westminster and carry it into every postcode in the country. Today, we make good on that promise," Burnham added.
"Soon, every local leader will have the power and resources to improve public transport, build homes and create jobs."
Treasury officials stated that detailed operational mechanics and equalisation formulas will be announced alongside Chancellor John Healey's autumn budget.
The equalisation system aims to prevent wealthier regions like London from pulling away from areas with slower economic growth.
"The people who best understand what skills employers want, what transport an area needs and where investment can make the biggest difference are those who live there," said John Healey, Chancellor of the Exchequer.
"For the first time we're giving Mayors a share of income tax so communities directly benefit when their economy grows."
Cabinet ministers noted that areas without an elected mayor will form strategic authorities to ensure non-mayoral regions retain access to devolved funding streams.
"This is the first step in our plan to rewire this country and build a better future, where power is no longer hoarded in Westminster but is put back in the hands of local people," said Angela Rayner, Secretary of State for Housing, Communities and Local Government.
First Secretary of State Louise Haigh defended the regional distribution model during media appearances. She confirmed that central formulas will balance revenue differences across regions.
"There is already a way that the business rates retention is distributed to correspond with central funding formula to correct for that," Haigh said.
"Because you wouldn't want to have it that places like London and Manchester and Bristol were able to retain more of theirs while other areas that weren't growing at the same rate, were falling behind."
Haigh confirmed that major urban centers will retain additional localized powers alongside revenue control.
"Yes, that's right, and it will have more powers devolved, 16-19 funding, employment support budgets and the ability to tailor their own vocational routes," she said.
Opposition parties criticized the announcement for lacking immediate funding and failing to clarify protections for weaker regional economies.
"Very short on the detail," said Sir Mel Stride, Conservative Shadow Chancellor.
Stride warned that linking regional funding directly to local economic growth could disadvantage struggling areas.
"Could mean those who lose out are precisely those areas which have seen weaker local economies over recent years," he said.
Parliamentary backbenchers and minor parties raised further concerns regarding regional equality and mayoral requirements.
Labour MP Perran Moon warned the model could create a "two-tier system" for regions like Cornwall that lack mayoral structures.
Liberal Democrat spokespeople warned against creating a "postcode lottery."
Reform UK home affairs spokesman Zia Yusuf urged the government to devolve border and housing controls regarding migrants.
West Yorkshire Mayor Tracy Brabin welcomed the income tax sharing. Tees Valley Mayor Lord Ben Houchen advocated for direct tax cuts and rebate schemes.
