UK Chancellor Announces Tax-Sharing Framework for Regional Mayors

For decades, England has stood as an anomaly among advanced democracies: a nation of 56 million people where virtually every pound of tax revenue flows to the Treasury in London before being parceled back out to the regions at Whitehall's discretion. On March 17, 2026, Chancellor Rachel Reeves signaled that era may be ending.

In her Mais Lecture at Bayes Business School — the annual address that chancellors have used since 1978 to lay out their economic philosophy — Reeves announced that she has instructed officials to develop "a roadmap for future fiscal devolution" that would give England's regional mayors control over a share of national tax revenues, including income tax [1]. The detailed plan is expected to be published at the autumn budget.

"This will set out plans to give regional leaders control of a share of some national taxes which have, for too long, been allocated by central government," Reeves said. "This is not about new taxes and it's not about higher tax rates. It is fiscally neutral, focused on sharing and retaining a portion of existing revenues" [2].

If implemented, the reforms would represent the most significant fiscal devolution to English regions in modern history — and a striking reversal for a Chancellor who opposed such measures as recently as 2023 [3].

What's Actually on the Table

The fiscal devolution roadmap is the headline announcement, but the package Reeves outlined extends well beyond it.

Tax-sharing framework. Officials will work with mayors and businesses to examine how income tax and other national taxes could be partially retained by the regions that generate them, rather than flowing entirely to the Exchequer. Reforms will initially target "those places that have the greatest capacity to deliver them, and the greatest potential to benefit" — widely understood to mean the most established combined authorities such as Greater Manchester and the West Midlands [1][2].

City Investment Funds. The Chancellor committed £2.3 billion to new city investment funds focused on northern England and the West Midlands, giving regional leaders control of what she described as "long-term, self-sustaining capital" [2]. This represents a significant departure from the short-term, competitive funding pots that have characterized central government's approach to regional investment.

Business rates retention. Reeves committed to allowing the proceeds of local economic growth to benefit the places that generated it, backed by a commitment to business rates retention — a long-standing demand from local government leaders who argue that the current system punishes success [4].

Growth corridors. The speech identified two major development corridors: the Oxford-to-Cambridge Growth Corridor, receiving £2.5 billion for East-West Rail, and the Northern Growth Corridor spanning nine million people across Liverpool, Manchester, Leeds, Sheffield, and York [4].

The Regional Inequality That Demands Action

The urgency behind Reeves' proposals is rooted in a simple, damning statistic: the UK is one of the most regionally unequal advanced economies in the world.

Source: ONS / Harvard Kennedy School Regional Inequality Study

Data as of Mar 18, 2026CSV

In 1921, London's GDP per capita was 37 percent above the national average; by 2021, that figure had ballooned to 76 percent above [5]. Meanwhile, the North East of England slipped from 27 percent below the average to 37 percent below. Gross Value Added per worker in the rest of the UK is just 71 percent of that in London and the South East — a gap more severe than between East and West Germany (80 percent) or North and South Italy (78 percent) [5].

This centralization extends beyond economics. As Reeves herself acknowledged, the UK remains "one of the most centralised advanced economies" in the world [6]. In France, Germany, Spain, and Italy, regional and local governments control substantial shares of tax revenue. In England, mayors depend almost entirely on grants from Westminster — grants that come with strings attached and planning horizons measured in single parliamentary terms rather than decades.

How England Compares to Scotland and Wales

The proposal immediately invites comparison with the fiscal powers already devolved to Scotland and Wales. The Scottish Parliament controls rates and bands of income tax on non-savings, non-dividend income, and has used that power to create a six-band system that diverges significantly from the rest of the UK [7]. Wales has more limited powers — it can vary each rate of income tax by up to 10 percentage points, though it has so far chosen not to diverge from Westminster [7].

England's regions, by contrast, have had no such powers. Combined authorities created under the devolution deals of the 2010s and 2020s have operated with grant funding, limited transport levies, and — since November 2025 — the power to introduce a tourism levy on overnight accommodation [3]. Reeves' proposal, if fully realized, would begin to close this gap, though the details will determine whether English mayors gain anything approaching the fiscal muscle of their Scottish or Welsh counterparts.

The English Devolution Bill: Legislative Context

The tax-sharing announcement arrives as the English Devolution and Community Empowerment Bill nears the end of its passage through Parliament. The House of Lords completed committee stage on March 5, 2026 [8]. The bill creates a new category of "Strategic Authority" in English law, standardizes voting procedures for combined authorities, and grants mayors new planning powers similar to those exercised by the Mayor of London [8].

However, as originally drafted, the bill explicitly stopped short of fiscal devolution. The Institute for Government noted that the government had "flatly rejected any devolution of additional revenue-raising powers" beyond a modest council tax precept [6]. Reeves' Mais Lecture signals a significant shift in that position — one that will likely require either amendments to the current bill or follow-on legislation.

The bill also extends the "integrated settlement" funding model — which merges nearly 30 separate Whitehall budget lines into a single pot — from Greater Manchester and the West Midlands to five additional regions starting in April 2026 [9]. This administrative simplification, while less dramatic than tax-sharing, may prove equally consequential in the short term by giving mayors genuine flexibility over spending priorities.

Reactions: Cautious Optimism and Political Skepticism

Regional mayors have broadly welcomed the direction of travel. Greater Manchester Mayor Andy Burnham has long argued for "more empowered Mayors and Combined Authorities" with real levers over rail, skills, housing, and funding arrangements [10]. The announcement aligns closely with what established mayors have been demanding for years.

But the response has not been universally positive. Shadow Chancellor Mel Stride attacked Reeves for "dragging us back into the old Brexit arguments" — a reference to other portions of the Mais Lecture focused on UK-EU alignment — and accused her of attempting to "cover her own failures" [11]. Conservative critics have questioned whether the devolution push is a genuine structural reform or a distraction from broader economic challenges, including sluggish growth and the inflationary impact of the government's employers' National Insurance contribution increase.

The Institute for Government offered a more measured critique, noting that "Reeves' coverage of devolution in her speech was brief" and that "she did little to lay out what a devolution agenda for growth would look like in practice" [6]. The think tank argued that devolution must be "a central part of Labour's broader growth plans, integrated into a new industrial strategy rather than a complication to an otherwise centralised agenda."

The Harder Questions Ahead

The real test of Reeves' ambition will come in the details of the roadmap. Several fundamental questions remain unanswered.

How much revenue? Sharing "a portion" of income tax could mean anything from a symbolic fraction to a meaningful share. Scotland's experience — where devolved income tax accounts for roughly a third of the Scottish Government's budget — offers one model, but applying it to English regions with vastly different economic profiles would be far more complex.

Which regions first? The emphasis on areas with "greatest capacity" suggests Greater Manchester, the West Midlands, and perhaps West Yorkshire will be early beneficiaries. But this raises equity concerns: if fiscal devolution rewards already-strong regions, it could widen rather than narrow the very gaps Reeves claims to be addressing.

Fiscal equalization. Any tax-sharing system creates winners and losers. London and the South East generate disproportionately more income tax per capita than northern regions. Without a robust equalization mechanism, fiscal devolution could entrench the advantages of wealthier areas — exactly the opposite of the stated goal.

Democratic accountability. Handing mayors control of tax revenue implies a new level of accountability for outcomes. The current mayoral model, with its limited powers and dependence on central grants, has arguably insulated mayors from the consequences of economic performance. That changes fundamentally if they control a share of the tax base.

A Broader Economic Vision

The fiscal devolution announcement was embedded within what Reeves called "Securonomics" — her framework for "delivering stability, investment and reform through an active and strategic state" in an era of global shocks [4]. The Mais Lecture also included a £2.5 billion funding package for AI and quantum computing, proposals for closer UK-EU economic alignment, and a defense of the government's fiscal record.

Source: World Bank

Data as of Mar 18, 2026CSV

That broader context matters. The UK's GDP per capita has recovered strongly since the pandemic, reaching an estimated $53,246 in 2024 — above France and Italy, though still trailing Germany [12]. But the national figure masks the regional reality that Reeves' devolution agenda is designed to address: while London competes with New York and Singapore, cities like Blackpool and Burnley lag behind much of Eastern Europe on key economic indicators.

Whether fiscal devolution can change that depends on execution. The history of English devolution is littered with ambitious announcements that faded into incremental adjustments. George Osborne's "Northern Powerhouse" and Boris Johnson's "Levelling Up" agenda both promised transformative regional investment; both delivered far less than their rhetoric suggested.

Reeves has at least one advantage her predecessors lacked: a legislative vehicle in the English Devolution Bill and a network of established combined authorities ready to receive new powers. The question is whether the Treasury — historically the most centralizing force in British government — will genuinely loosen its grip on the purse strings, or whether the roadmap published at the autumn budget will amount to another carefully hedged promise of change always just over the horizon.