Government considers transferring a share of business-rates revenue to regional leaders alongside wider powers over health, education and justice
England’s regional mayors could be given control of billions of pounds collected through business rates under government proposals designed to shift money and decision-making power away from Westminster.
Ministers are examining whether part of the revenue generated by the commercial property tax should be transferred directly to regional authorities. The proposal forms part of a broader programme of fiscal devolution intended to give local leaders greater influence over economic development and public services.
Business rates raised approximately £26.4 billion in the most recent financial year. Although the government is not expected to transfer the entire sum, even a relatively small proportion could significantly increase the resources available to mayoral combined authorities.
Local Government Secretary Steve Reed said officials were considering the devolution of business rates, or elements of the tax, as part of the government’s developing fiscal reforms. The plans remain at an early stage and are expected to be considered as part of a wider roadmap to be presented by Chancellor Rachel Reeves at the next Budget.
The central objective would be to allow regions to benefit more directly when their economies expand. Authorities that attract investment, support local businesses and increase commercial activity could retain a greater share of the additional revenue generated.
However, ministers are also considering safeguards to prevent the system from widening the economic divide between richer and poorer areas.
Regions with large commercial centres and more valuable properties naturally collect more in business rates than less prosperous communities. Allowing each area simply to retain everything it raises could therefore leave weaker economies with fewer resources.
An equalisation mechanism is expected to remain at the heart of any new arrangement, redistributing some funding according to local needs while still rewarding regions that achieve stronger economic growth.
The proposal represents a potentially important change in the relationship between central and regional government. England remains one of the most centralised political and fiscal systems among advanced economies, with most major taxation and spending decisions controlled by the Treasury and Whitehall departments.
Regional mayors have gained greater responsibility for transport, housing, planning and skills in recent years, but their ability to raise or retain revenue remains limited. This means that many local investment programmes continue to depend on grants approved by central government.
Giving mayors a predictable share of tax income could enable them to plan infrastructure, regeneration and public-service projects over longer periods rather than repeatedly competing for short-term funding settlements.
The reforms could also be linked to a substantial expansion of mayoral responsibilities. Ministers are considering giving regional authorities a stronger role in areas including education, health and justice, potentially allowing policies to be tailored more closely to local conditions.
Supporters argue that local leaders are often better placed to understand regional labour markets, transport requirements, health inequalities and educational needs. Combining greater responsibility with more reliable funding could make devolution more effective than simply transferring administrative duties without the resources needed to deliver them.
The government is also examining whether regions could receive a share of other national taxes. Reeves has previously indicated that officials are studying options involving elements of income-tax revenue, although regional leaders may not necessarily be allowed to set the tax rates themselves.
A separate proposal for a tourist levy is also being developed. The charge could apply to stays in hotels, holiday rentals and bed-and-breakfast accommodation in selected areas. Ministers are considering whether it should be imposed as a fixed nightly fee or as a percentage of the accommodation price.
Business rates remain politically sensitive, particularly among retailers, pubs and hospitality companies. Many businesses have faced higher bills following property revaluations, while operators continue to argue that the system places an unfair burden on physical premises compared with online businesses.
Any decision to devolve the revenue would therefore have to address two separate questions: how the money should be distributed between regions and whether the underlying business-rates system itself requires further reform.
For regional leaders, the opportunity is considerable. Greater control over tax revenue could provide the financial independence needed to support local industries, improve public services and invest in long-term growth.
For the Treasury, however, the reform would require surrendering part of its traditional control over national finances while ensuring that residents do not receive dramatically different levels of public support simply because of where they live.
The final structure has yet to be determined, but the direction of government policy is becoming clearer. England’s devolution programme may be moving beyond the transfer of individual responsibilities towards a deeper redistribution of money, authority and political accountability.
If implemented, the changes could become one of the most significant reorganisations of England’s tax and local-government system in decades.
