Burnham’s income tax revolution is a gamble – but here’s why it works

Just a month ago, Andy Burnham stood in the People’s History Museum in Manchester and set out what he would do as prime minister. The central argument was about local control: giving places the ability to shape their own economies rather than waiting for decisions to arrive from Whitehall. Now that he has the job, he has the power to change where power lies in Britain. For years, devolution and the regional inequality agenda were the political equivalent of a cult indie band on BBC Radio 6 Music: passionately championed by a small group of enthusiasts, but rarely troubling the mainstream. Now it has achieved something approaching breakthrough success and wider popular appeal. Under previous governments, the first metro mayors were given various pots of government funding for particular projects, accompanied by their own rules. More recently, Michael Gove helped establish more flexible single settlements. Burnham’s plans, which will be set out on Friday, reportedly include giving regional mayors a share of income tax revenues from their areas to spend in their area, and possibly doing the same with income from business rates raised locally. This money would come without direction from Whitehall as to what it should be used for. That might mean it is invested in the local economy; or, as Conservative Ben Houchen in Tees Valley has suggested, mayors could try to give it to households in a tax rebate. This raises an important question: if mayors are being given more control over the money they have to spend, should they not be raising more of it themselves? At present, a mayor who wants to build a tram line, unlock a development site or help businesses adopt AI must usually return to the Treasury and ask for another allocation. Local leaders can make the case for investment, but they receive little direct financial reward when that investment succeeds. In Greater Manchester, they knew in the late 1990s that they needed to build a tram and a second runway at Manchester Airport. The second runway opened in 2001, and the airport tram stop in 2014. They had access to better evidence, and took a longer-term view than central government often does. This is one reason Manchester has been the fastest growing city region over the last two decades. Central to the original Northern Powerhouse vision, set out by George Osborne in his own speech at a Manchester museum more than a decade ago, was a new railway line across the Pennines, now called Northern Powerhouse Rail. It was this project which convinced ministers back in January, when the now-Prime Minister was negotiating for an underground station at Manchester Piccadilly, that more taxes should be retained in the places where they are generated, allowing major infrastructure to be funded both nationally and regionally. The idea was that the new jobs, higher wages, offices and homes unlocked by a new station or railway line could generate additional tax revenues to help pay for it. Unlike in Scotland, local income tax or business rates would not rise or fall. Instead, a share of these taxes would replace existing grants that mayors are already due to receive for things like transport or housing. Mayors and other local leaders would retain an agreed share of any future increase in revenues generated by stronger growth in their region. They could borrow against this future income, or use it to repay the private developers that deliver the project upfront. This would help make projects happen that would otherwise remain dependent on repeated negotiations with the Treasury. These reforms would incentivise how local and regional government behaves. Whether through improving infrastructure or making their areas more attractive to business, even natural populists will realise their communities would share in the gains being made from maximising growth and prioritise it. Places should be given the freedom to make different choices. One area might use it to repay the debt on the local airport they decided to purchase. Another might opt out of charging a visitor levy. At elections, voters would have a genuine choice between mayoral candidates with meaningful power over how money is raised and spent. Regions currently spend far too much time asking the Government to return their own money to them. Of course areas must have enough funding to provide decent public services, but that does not mean so much money directed to Whitehall from across the country should be treated by civil servants as the Treasury’s own cash. It isn’t. It is our money. Nor can it always be left to the Treasury to make every important decision. Whitehall cannot reproduce the Greater Manchester miracle by itself. Its role should be to allow places to use limited public funding to unlock far greater private investment, which in the end is what creates the jobs and growth. From working with Andy over the past decade, I know he is serious about changing where power lies in Britain. Giving mayors genuine financial responsibility would be a decisive place to start.