Andy Burnham, the newly elected Makerfield MP and former mayor of Manchester, is reportedly considering the devolution of income tax powers to local governments as part of a broader push to increase regional autonomy across Britain. A senior adviser expected to join Burnham’s team, Lord O’Neill of Gatley, indicated that the incoming prime minister would seriously investigate devolving “aspects of income tax” upon entering Downing Street.

Lord O’Neill cited constitutional devolution as a central theme for Burnham’s administration, suggesting that the move would mark a significant expansion of fiscal powers for local authorities beyond current arrangements such as business rates devolution. “This would be a whole new level,” Lord O’Neill told LBC, noting that exploring income tax devolution was a viable option on the agenda.

The proposal raises substantial fiscal questions, particularly regarding the redistribution of tax revenues across regions. Currently, London and the South East generate close to half of the UK’s income tax revenue, meaning that devolving income tax powers risks uneven tax burdens and potential disparities in public spending if local areas were required to maintain their existing service levels.

Known for championing devolution during his time as Manchester mayor, Burnham’s potential income tax reforms would represent a major shift of authority from Westminster to local leaders. There are also reports that Burnham is considering relocating some government operations from No 10 Downing Street to Manchester as part of his decentralisation agenda.

Alongside tax reform, Lord O’Neill warned of the unsustainable trajectory of public spending in the UK. He stressed that the ongoing rise in government expenditure, coupled with rising national debt approaching £3 trillion, risks damaging market confidence. Speaking in an interview, he said that without decisive action, Britain could face sharp rises in borrowing costs, comparing 10-year gilt yields unfavourably with those of Greece.

Lord O’Neill called for comprehensive welfare reforms to reduce debt and foster economic growth, asserting that “sooner or later the markets are going to force something pretty dramatic to happen, or a bold leader does it in advance.” He suggested that Burnham might succeed where Labour leader Sir Keir Starmer has not, particularly in cutting welfare spending, which he believes could be more effectively managed through localised devolution.

However, some business leaders have cautioned against increasing tax burdens as part of this restructuring. At the British Chambers of Commerce annual conference in London, concerns were expressed that higher business taxes could undermine economic growth. Rob Perrins, chief executive of Berkeley Group, warned Burnham against introducing new housing taxes, such as a potential “land value tax” to replace stamp duty, arguing that repeated tax increases risk shrinking the overall taxable base.

As Burnham moves to define his economic and fiscal policies, balancing devolution ambitions with fiscal responsibility and market confidence will be a critical challenge for his administration.