The UK government has outlined a roadmap for fiscal devolution aimed at transferring greater economic and fiscal powers to local regions, with a focus on boosting regional growth by allowing local decision-makers more control over tax revenues. The plan, announced in the recent budget, is set to begin next year and extend through the end of the decade.

From 2025, elected mayors will gain control over 20 percent of business rates revenue in their areas, with this share increasing to 100 percent by 2030. In addition, by 2028, mayors will have access to a proportion of income tax revenue from employees, the self-employed, and pensioners in their regions, as well as income from overnight visitor levies should these be introduced locally. Income tax is expected to become the primary revenue stream for merged local strategic authorities.

This devolution initiative builds on the existing framework established in several “first wave” mayoral regions such as Greater Manchester, the West Midlands, and the Greater London Authority. It now seeks to extend across a broader range of areas including Devon, Plymouth and Torbay; Hertfordshire; Lancashire; Leicester, Leicestershire and Rutland; Stoke and Staffordshire; Surrey; Thames Valley; and Wessex. Kent and Medway are expected to form a strategic authority, and Cornwall is anticipated to operate as a single authority. Once fully implemented, the government aims to secure devolution agreements covering more than 90 percent of the UK population by the end of 2028.

The overarching goal of fiscal devolution is to enhance local governance by aligning infrastructure planning, business intervention, and public spending with regional priorities. Allowing local authorities to retain a portion of tax revenues is intended to incentivize growth initiatives that bolster those revenues.

Fiscal devolution in the UK has trailed behind other advanced economies: a recent report by the Centre for Cities found that the UK is the least fiscally devolved country in the G7, with 95 percent of tax income flowing directly to the central government. The think tank identified fiscal decentralization as a potential driver of economic growth, emphasizing that local empowerment enables tailored responses to business and employment challenges.

Prominent experts such as Sir John Kingman and Baroness Shriti Vadera have endorsed fiscal devolution as possibly the most significant opportunity in decades to improve economic performance outside London. However, they caution that success depends on the extent of freedom and resources granted to local leaders, as well as their capacity for effective decision-making. Critics raise concerns over the potential for additional layers of bureaucratic governance, though proponents stress the intention is to avoid unnecessary duplication.

The new forecasts from the Office for Budget Responsibility (OBR) released alongside the budget paint a cautious economic picture. Growth is projected at 1.2 percent for 2024, slowing to 1 percent in 2025, although some analysts argue the forecast may be too pessimistic based on recent data. Real household disposable incomes are expected to increase only marginally over the next decade compared to pre-pandemic levels, due largely to energy shocks and frozen income tax thresholds.

In parallel political developments, Greater Manchester Mayor Andy Burnham reignited debate by advocating reconsideration of EU freedom of movement, highlighting pre-Brexit migration as beneficial, particularly for labor market participation rates. His comments have prompted Conservative Party figures to reaffirm a hard-line Brexit stance, reflecting ongoing tensions over immigration policy.

While the government’s fiscal devolution plan represents a significant structural shift with the potential to reshape regional economies, its effectiveness will likely depend on sustained political commitment and local administrative capacity amid an economically challenging environment.