Burnham Fiscal Devolution Plan Faces Its First Real Test

The Burnham fiscal devolution plan, formally set in motion by the government’s announcement on 31 July 2026, marks the most ambitious attempt to redistribute financial power from Whitehall to English regions in a generation. The headline numbers are modest for now, but the structural logic, and the structural risks, are considerably larger.

Where England stands: a centralisation that has few peers

Local and regional taxes in England account for less than 2% of GDP, according to the original analysis that has framed this debate for years. The gap with comparable economies is stark: France collects 20.4% of GDP through local and regional taxes, Japan 36%, and the United States 45.7%, according to BBC News. England, where 85% of the UK’s population lives, remains governed almost entirely from the centre.

This was not always the arrangement. The great Victorian municipalities exercised genuine civic power. The post-war centralisation of the welfare state dismantled much of that, and successive governments have reinforced the pattern rather than reversed it.

The legislative and fiscal architecture of the Burnham fiscal devolution plan

The statutory foundation is the English Devolution and Community Empowerment Act 2026 (2026 Chapter 23), which received Royal Assent on 29 April 2026. The Act creates three tiers of Strategic Authority: foundation, mayoral, and established mayoral, with a standard set of functions attached to each level, as set out in the Lords Library briefing. It also begins simplifying local government by replacing district councils in areas such as Essex, Kent, Surrey, Hertfordshire, Norfolk and Suffolk with unitary authorities, reversing the two-tier structure introduced by the Local Government Act 1974.

The fiscal layer sits on top of this. From April 2027, mayors will be able to retain a greater share of locally generated business rates. Only Greater Manchester and West Midlands have operated a full business rates retention model since 2024: in Greater Manchester’s first year of operation, £100m in business rate income was retained in 2024-25, with three-quarters going to the ten local authorities and £25m kept by the mayoral authority for projects, according to The Guardian. Income tax devolution follows from April 2028, with mayors receiving a slice of regional receipts in place of central grants. Income tax rates will not change.

Chancellor John Healey will set out the precise settlement in the autumn Budget, according to iNews. The Centre for Cities think tank estimates that around 2% of income tax raised locally is sufficient, on average, to replace existing mayoral grants.

The distributional consequences of any income tax share will be large and geographically uneven. Research by the thinktank Re:State, modelling a scenario where mayors received 2.5% of the 20p basic rate, finds that London would receive £2.3bn in 2026-27 while Hull and East Yorkshire would receive £135m. Re:State’s longer-term proposal is more radical still: a regional progressive income tax representing 50% of total income tax, with central government halving national rates and regional authorities gaining the power to vary rates and create new bands.

The House of Commons Library records the government’s stated aim as moving local areas away from dependence on Whitehall grants and towards funding that rewards local growth. IPPR North described the income tax and business rates package as ‘the most significant shift in how England is funded in a generation’.

The obstacles that could hollow it out

The diagnosis is broadly right. The prescription faces three interlocking problems.

First, councils’ budgets are already consumed by what critics have called ‘the frightful four’: adult social care, temporary accommodation, children’s services and school transport. These are statutory obligations for which funding has been chronically inadequate. Handing mayors a notional share of income tax while these liabilities remain unaddressed simply rearranges the pressure.

Second, as the Ward Hadaway briefing on the legislation notes, the structural reform of local government is still underway. Powers devolved to mayors currently leave approximately 50% of England’s population (by headcount) in areas without a mayor, still governed directly by Whitehall. Capacity building across the tier will take years.

Third, and more politically awkward: devolution only creates genuine incentives if regions are free to make genuinely different choices. Early signals from Burnham’s administration, including a national cap on bus fares and differentiated tax treatment for businesses he deems socially desirable, suggest a preference for devolved delivery of centrally determined policy. That is not the same thing as fiscal autonomy, and the tension between Labour’s instinct to enforce equality of outcomes and the competitive incentives that make devolution work has not been resolved.

The design of the income tax formula, which Healey will publish in the autumn, is the next real test. A formula that genuinely rewards local growth would be a structural shift; one that approximates existing grant allocations would be fiscal theatre. The two look similar on announcement day and very different a decade later.