Liverpool city region Mayor Steve Rotheram welcomes Government plans to allows devolved regions to grab a share of income tax but leading economists warn of less certain and ‘volatile’ revenues. Tony McDonough reports
Economists at the Institute for Fiscal Studies (IFS) give a cautious welcome to the news that devolved regions are to get a share of income tax but warn the policy does carry risks.
New Prime Minister Andy Burnham says he will proceed with former Chancellor Rachel Reeves’s plan to replace much of the grant funding that England’s regional mayors get with a share of the income tax and business rates raised in their areas.
Income tax revenue sharing is expected to start from April 2028. Business rates sharing is planned to start from April 2027, building on pre-existing sharing arrangements with councils and some mayors.
Liverpool city region will be one of the regions to benefit from this and Mayor Steve Rotheram says this is good news for Liverpool, Wirral, Sefton, Knowsley, St Helens and Halton.
He explained: “For decades, regions like ours have driven the country’s success but too often haven’t seen enough of the benefits of that success stay in the communities that helped create it. This announcement is an important step towards changing that.
“When our economy grows, more of the value created here should be reinvested here too. Giving mayors a direct stake in that success means we can back the projects that create more opportunities.”
However, the IFS, a leading UK economic think tank, warns that tax revenues can go up or down depending on the economic performance of each region which means the policy does carry a risk.
It said: “Replacing grant funding with a share of tax revenues is not an unalloyed good. Revenues in different places may diverge for reasons completely outside mayoral control – greater rewards also mean greater risks.
“Revenues can also be volatile and uncertain on a year-to-year basis. Aligning the design of the new system with the government’s – and mayors’ – objectives and appetite for risk will therefore be important.”
David Phillips, head of devolved and local government finance at IFS, added: “While far from radical when compared with how regional governments are funded in other countries, the plans confirmed today are significant in an English context.
“Currently, England’s mayoral strategic authorities – particularly those outside London – rely overwhelmingly on grant funding from the government. By 2028, much more of their funding will come from tax revenues raised in their areas.
“This will provide greater financial reward if their economies and revenues perform strongly, but also more risk if the economy and revenues perform poorly – perhaps due to factors entirely outside of their control.”
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Experts at the IFS estimate that between 6% and 9% of local income tax revenues would be sufficient to fully replace the ‘integrated settlements’ for economy-related functions provided to the ‘established’ mayoral strategic authorities in the North and Midlands.
Steve Rotheram also said: “Here in Liverpool city region, we’ve shown what’s possible when decisions are made closer to the people they affect.
“This gives us the chance to build on that progress and make every pound of growth work harder for the 1.6m people who call our area home.”