Andy Burnham’s proposal to share income tax with England’s mayors would represent far more than another devolution reform.
It would fundamentally alter how economic growth is rewarded, moving Britain closer to the fiscal models used in Germany, Canada and Switzerland while raising difficult questions about regional inequality and the future role of the Treasury.
Andy Burnham is preparing to test one of the central assumptions of Britain’s economic model: that Whitehall should remain the primary collector and distributor of tax revenue.
Plans being developed by Treasury officials would allow England’s combined authorities to retain a share of the income tax generated within their own economies, creating a direct financial link between regional growth and local government funding.
If implemented, the proposal would amount to the most significant fiscal devolution since the creation of directly elected mayors and could reshape the relationship between central government and England’s largest city regions.
The timing is politically significant.
Having built his reputation as Greater Manchester mayor, Burnham enters Downing Street with years of experience arguing that Britain’s highly centralised state has constrained productivity outside London. His promise to “take power back from Westminster and Whitehall” reflects a long-standing belief that local leaders should have greater authority over both spending and revenue.
Unlike previous devolution settlements, however, income tax sharing would move beyond granting mayors additional responsibilities. It would give them a direct financial incentive to expand their local economies.
That distinction matters.
Under the proposed model, regions benefiting from higher employment, stronger wages and greater business investment would see their own revenues increase. Successful local growth strategies would therefore translate into larger budgets rather than relying solely on Treasury allocations.
For economists who have long criticised Britain’s centralised fiscal structure, the logic is straightforward.
Countries with more decentralised tax systems often allow regional governments to retain a meaningful share of the economic gains they generate. OECD comparisons show nations including Germany, Switzerland, Canada and the United States distribute substantially more tax revenue through regional administrations than the UK, where Whitehall continues to dominate fiscal decision-making.
Supporters argue that aligning financial incentives with local decision-making encourages longer-term investment in transport, housing, skills and infrastructure because regional leaders directly benefit from stronger economic performance.
The proposal would also fit alongside Labour’s broader industrial strategy, which places considerable emphasis on regional growth rather than relying disproportionately on London and the South East.
Yet the reforms also expose significant risks.
The immediate beneficiaries would largely be existing combined authorities, most of which are Labour-controlled. London, the West Midlands, Liverpool City Region, the North East, South Yorkshire and West Yorkshire would all be positioned to receive additional revenue, while Greater Manchester’s mayoralty remains vacant following Burnham’s move into national politics.
Large parts of England—including much of the South West, East Anglia and the Home Counties—currently lack comparable devolved structures.
Unless new mayoral authorities are created quickly, those regions would remain outside the proposed framework despite contributing substantial tax revenues.
The Institute for Public Policy Research has warned that such an outcome risks creating a “two-tier England”, where access to devolved funding depends less on economic need than institutional geography.
That criticism highlights a broader challenge facing any attempt to decentralise taxation.
While stronger fiscal autonomy can improve accountability and encourage local investment, it can also widen disparities between wealthier and poorer regions unless accompanied by robust equalisation mechanisms.
The Treasury has historically resisted extensive tax devolution precisely because it allows ministers to redistribute resources nationally. Income tax sharing inevitably reduces that degree of central control.
For Chancellor Rachel Reeves, the policy therefore represents a delicate balancing act.
The government must convince financial markets that decentralising revenue will improve productivity rather than weaken fiscal discipline. Investors will look closely at whether the reforms preserve Treasury oversight while giving regional authorities enough certainty to pursue long-term infrastructure programmes.
There is also the question of scale.
Even allocating just one per cent of locally generated income tax would transfer billions of pounds away from Whitehall. Larger allocations would significantly alter public spending dynamics across England and redefine the fiscal relationship between Westminster and regional government.
Whether Burnham can persuade both the Treasury and Parliament to embrace such a structural change remains uncertain.
What is clear is that the proposal goes well beyond administrative reform. It challenges the post-war model of economic governance that has concentrated taxation and spending power in Westminster for generations.
If adopted, income tax sharing would not simply strengthen England’s mayors. It would mark the beginning of a fundamentally different approach to governing—and financing—the British economy.
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