Mayors Seek Power to Cut Local Taxes as Fiscal Devolution Advances

Mayors across England are calling for the authority to cut local taxes, arguing that fiscal devolution should give them the freedom to vary business rates and council tax before income tax. The Centre for Cities says that mayors should be able to cut taxes if they also accept the financial responsibility for doing so. Two metro leaders, Ben Houchen of Tees Valley and Paul Bristow of Cambridgeshire and Peterborough, have said they are exploring income‑tax rebates for residents.

These remarks come as the government advances three strands of fiscal devolution for English metro areas. The first is an overnight visitor levy that would let mayors charge a fee on staying visitors. The second is a move toward greater retention of business rates, so that a larger share of the proceeds stays locally. The third is income‑tax sharing, under which places would keep a slice of the income tax generated within their boundaries. Together, these changes represent the biggest overhaul of local finance in decades.

Yet the current design limits the scope for mayors to alter tax bills for residents. Only the visitor levy gives mayors direct control over a tax rate; business rates and council tax remain subject to national caps or sharing arrangements. Income‑tax sharing, while striking, is tied to equalisation with other areas and replaces existing mayoral grants, making it difficult for a mayor to vary the rate without affecting the overall distribution. As a result, the prospect of a straightforward tax cut through income‑tax sharing remains uncertain.

Houchen and Bristow suggest that rebates could return income‑tax receipts directly to residents, but they acknowledge the idea may be tricky to implement. The Centre for Cities notes that even if the specific rebate proposal proves difficult, the government should welcome the principle of letting mayors use their taxbase as they see fit. This stance reflects a broader belief that fiscal devolution must be substantive to be effective.

For devolution to be substantial, different places need the ability to set different tax rates and decide what to do with the resulting revenue. The analysis points out that property taxes offer a more immediate route to local control. Business rates are currently split between central and local government, but the introduction of income‑tax sharing could allow the proceeds to return to purely local hands. Council tax is already collected by some metro mayors, yet central government capping would need to be removed for mayors to be fully accountable to voters for its level.

If mayors gained full control over business rates and council tax, they could raise or lower these taxes to match local priorities. A mayor elected on a platform to improve public transport could increase business rates or council tax slightly to fund the investment, while a mayor promising tax cuts could reverse the changes, provided they identify spending they are willing to trim. Crucially, both approaches become less painful when the local economy grows, because a stronger base yields more revenue regardless of the rate.

The analysis also warns against linking tax changes to redistribution. If a locality lowers taxes for its residents, it should not expect compensation from other mayoral areas; likewise, an affluent area that raises rates should not be obliged to share the extra receipts elsewhere. Separating the taxbase that is subject to equalisation—such as income‑tax sharing—from the taxes under direct mayoral control—such as council tax and eventually business rates—allows fiscal devolution to deliver genuine tax variation.

A system that gives places greater freedom to choose their levels of local taxation and spending creates healthier incentives. Politicians of all persuasions would then have a financial motive to pursue growth in their area, knowing they can use the receipts as they wish. This in turn encourages tolerance for different tax levels across the country, rather than imposing a uniform rate that may not reflect local preferences.

The government’s next step, according to the Centre for Cities, is to welcome the principle of mayoral tax flexibility and to work toward removing the remaining barriers that prevent mayors from varying business rates and council tax. Doing so would make fiscal devolution not just a transfer of funds, but a genuine shift in accountability that could make local tax policy more responsive to voters.