Andy Burnham’s Devolution Push: The Economic Quagmire of Shared Income Tax

Andy Burnham, by pledging to transfer the fiscal levers long held by Westminster to local authorities, is taking on the risk of fundamentally reshaping England’s regional inequality.

Westminster’s Centralisation Legacy

The United Kingdom ranks among the most fiscally centralised advanced economies; only 5% of tax revenue stays with local authorities, compared with 14% in France and 22% in Japan.

■The majority of tax receipts flow straight to Whitehall.

■Regional budget shortfalls have nurtured a persistent “begging‑bowl” culture.

■Central austerity cuts have eroded the quality of local services.

Mayors’ New Revenue Stream: Shared Income Tax

Burnham’s proposal aims to allocate 6‑9% of locally generated income tax to regional mayors, fully replacing the existing “integrated settlements” grants.

■6‑9% share could entirely supplant current central grants.

■Revenue sharing directly strengthens financing for local development projects.

■Full impact will not be felt until 2028.

Regional Inequality Risks

The fastest‑growing mayoral authorities tend to be the wealthiest; this could trigger a self‑reinforcing cycle of economic lag.

■London and Greater Manchester stand to gain the most from the new tax share.

■West Midlands and South Yorkshire risk falling behind in growth.

■Weaker economies may spiral into reduced investment and lower growth.

Implementation Timeline and Political Friction

Rolling out the devolution agenda will be intricate, hampered by existing administrative shortfalls and political will.

■New mayoralties slated for creation by 2026‑2027 include Essex, Stoke‑on‑Trent, Warrington, among others.

■Local government workforce has shrunk from 2.2 million in 2009 to roughly 1.1 million, leaving a technical expertise gap.

■Audit weakness: only 1% of authorities published audited accounts for FY 2022‑23 by the deadline.

Potential Macro‑Economic Impact

The OECD notes that higher levels of tax and spending devolution correlate with higher wages; in the UK, this reform could boost productivity over the long term.

■Integrating transport networks in the six largest English cities outside London could connect 1.2 million people to city centres, delivering £17 bn productivity gains.

■Second‑tier UK cities underperform within the G7; these reforms could lift Britain’s global competitiveness.

■Public trust in local government remains modest, with only 35% of citizens expressing high or moderate confidence.

Bora Yalın – Senior Researcher, International Capital Flows: Devolution may generate short‑term fiscal strain and policy uncertainty, but over the longer horizon it can reallocate capital flows by enabling more efficient regional resource use. This transition will shape market sentiment from risk‑on to risk‑off and deepen regional differentiation in infrastructure and innovation investments. The biggest risk lies in the capacity of weaker local authorities to manage debt and liquidity; any strain could reverberate through national financial stability.