UK sets out fiscal devolution plan to boost economic growth

UK Sets Out Fiscal Devolution Plan to Boost Regional Economic Growth

Overview of the UK’s Fiscal Devolution Initiative

LONDON, Oct 28 (Reuters) - England's regions will be able to retain a share of income and business rate taxes raised in their areas, the British government said on Wednesday, a step towards unwinding one of the most centralised countries in the world.

Government’s Vision for Regional Empowerment

Andy Burnham, who served as Greater Manchester mayor before becoming prime minister in the summer, has made shifting power away from London a central goal of his government, part of what he calls a "rewiring" of the British state.

Key Fiscal Measures Announced

In what the finance minister John Healey described in his budget as the "most radical act of devolution in a generation", the regional mayors in England will be able to keep 20% of business rates revenue from next year and a share of income tax from 2028. 

The mayors will also be given new powers to charge a levy on overnight stays for visitors from 2028, he said.

Long-Term Funding and Local Investment

"Taken together, these are long-term funding streams they can use to back investment into big local infrastructure, so that more of the money that is raised locally, can be spent locally," Healey told parliament in his budget statement.

The changes provide a first glimpse into how Burnham plans to rebalance the British economy by giving more power and resources to the nations and regions.

Economic Impact and Regional Growth

The reforms aim to boost economic growth by allowing local authorities to retain a share of the additional tax revenues generated in their areas, creating a financial incentive to pursue pro-growth policies.

Challenges of Centralisation

Some politicians and economists argue that decision-making concentrated in London has led to two deeply entrenched problems: low economic growth in parts of central and northern England, and a lack of affordable housing and other economic pressures in the southeast.

Future Plans for Devolution

Healey said he wanted to go further, with regional mayors retaining all business rates revenue raised locally by the end of the decade.

About 6% of tax revenue is currently raised at levels below national government, compared with 20% in France and about half in Germany and the United States, according to the Organisation for Economic Cooperation and Development.

Historical Context and Previous Efforts

Previous British prime ministers since the 1960s have promised to devolve power or sought to address regional imbalances, but they have failed to narrow the gap between richer and poorer regions.

Reporting Credits

(Reporting by Andy Bruce and Andrew MacAskill, Editing by Alistair Smout and Kate Holton)