Labour's budget has unveiled a fiscal devolution roadmap that will fundamentally reshape how local authorities are funded, marking what Treasury minister Torsten Bell described as a step change in the relationship between central government and local councils. From 2028, mayoral strategic authorities will receive a share of income tax receipts for the first time, while from next year they will be allocated 20% of business rates revenue, a figure that could potentially rise to 100% by the end of the decade. A new overnight visitors levy will provide an additional local income stream.
The shift represents a significant departure from the centralised funding model that has dominated since the 1980s. Bell highlighted how Margaret Thatcher's government "hugely hollowed out local government" in that era, and the current measures aim to reverse that legacy. By replacing government grants with guaranteed income streams from taxation, strategic authorities will gain greater certainty over future revenue, allowing them to borrow against these streams and plan according to locally set priorities rather than depending on year-to-year allocations from Westminster.
The changes carry considerable implications for how regional inequality might be addressed. However, the Local Government Association has warned that councils face a £7bn funding gap by 2028-29 as they struggle to meet statutory obligations on social care. The success of the devolution roadmap will depend partly on mechanisms to be announced in next year's spending review, particularly ensuring that poorer areas with smaller tax bases do not lose out under the new system.
Mayor Andy Burnham has positioned devolution as central to his vision for rebalancing the country and rolling back decades of centralisation. Beyond fiscal changes, observers suggest that strategic authorities will need capacity to gradually reassume control over priorities in sectors such as care, housing and utilities. The budget measures have started a process described as rewiring British politics, though delivering a genuine renaissance of municipal England will require further steps and investment at scale in community provision.
For savers, borrowers and business owners across the UK, this shift means local decisions about public services and investment priorities may increasingly be shaped by councils rather than Westminster, though the impact on individual finances will depend on how each authority uses its new powers and how mechanisms to protect poorer areas are designed.