‘Today we find out if fiscal devolution is the missing piece of Manchesterism?’

As the possibility of a leadership contest fizzles out, all eyes are now firmly on what a Burnham premiership will actually entail. In the absence of a formal challenger, the soon-to-be PM will set out his stall in a series of set piece speeches over the next couple of weeks. 

The first of these has been billed as majoring on devolution and its role in regional growth. This is quintessential, bread and butter Burnham – what Louise Haigh has called “the heart” of Manchesterism. But it will also be the first serious indication of his level of ambition compared to Starmer and Reeves on this front. 

With the English Devolution and Community Empowerment Act recently passed, and Reeves announcing a “roadmap” towards fiscal devolution earlier this year, where might Burnham go next if he is looking for a more “aggressive” programme of devolution? 

There’s talk of a slew of new mayoralties – and completing the map will be important if Whitehall itself is to be reshaped through devolution (a task that will now be harder thanks to last minute concessions in the legislation). 

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But the true test of the depth of Burnham’s commitment will be the role of fiscal devolution in his vision for the country.

This is because tax powers and financial autonomy would be the key to unlocking so much else that Burnham will likely seek from devolution – from regional productivity and growth to place-based public service reform and a new kind of relationship between central and local. 

The most commonly cited reason for fiscal devolution in some quarters is to shift incentives. At the moment, when local leaders take decisions that lead to higher growth, they do not directly share in the benefit – the majority of the resulting tax revenues go straight to the Treasury. 

But incentivising growth-friendly decision-making is only one part of the picture. The benefit of greater tax decentralisation is also what it enables – and this is particularly the case when it comes to regional infrastructure. 

To get England’s mayors building, they need a source of revenue that they can rely on over the long-term, that is buoyant (it goes up when there is growth), and that is theirs to spend freely. 

Allowing mayors to retain more of the taxation raised in their areas would mean that they can experiment with new ways to fund infrastructure projects, such as Tax Increment Financing, where future gains in revenue are earmarked to pay back the borrowing that financed them. 

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If mayors want to move towards setting up new public corporations and issuing ‘municipal bonds’ to fund significant projects – methods that were relied on heavily in the past to fund major municipal public works – then they will need fiscal devolution to convince lenders they can pay them back. 

A guaranteed portion of the local tax take would enable a more independent approach to regional transport, for example. Currently, local leaders have to make extensive efforts to convince central government of a scheme’s value for money for the funding to be approved (which has long stifled projects like the Leeds tram). 

With proper fiscal devolution, they would be able to go ahead of their own accord – as is common practice for cities in Spain and France, for example. 

However, the benefits of fiscal devolution go beyond transport and infrastructure to the very heart of the relationship between Whitehall and the local state. As long as mayors remain dependent on funding that flows through many corridors in Whitehall before reaching them, they will remain subject to the whims of central government, and the ‘begging bowl’ culture will continue. 

The integrated settlements that the most mature mayoral strategic authorities currently receive are an improvement on previous practice – a multitude of ring-fenced, tightly focused funding pots – and allow for a greater degree of flexibility in how funds are spent. Nevertheless, they still come with a plethora of conditions and reporting requirements. This is to be expected. It is how our system of accountability works: Whitehall departments need to be able to show good value for money on spending to Parliament. 

But it also acts a constraint on the potential of devolution, which is about recognising that interventions work best when they are tailored to the strengths, conditions and priorities of a particular place. 

That’s why Re:State’s new report recommends getting rid of these funding settlements altogether and allowing mayoral authorities to retain a portion of the income tax raised in their areas instead. 

To rewire the system, this settlement should come directly from Parliament, rather than operating as a repackaged version of another departmental grant. And it should be designed so that when places take decisions that boost their economies, they get to keep the additional revenue. 

This would enable proper flexibility over how funds are spent, and give regions real skin in the game, including when it comes to big projects. 

A serious, long-term programme of tax reform would also look at the possibility of regional rate varying powers (common in Scandinavian countries); and a land value tax as a replacement for local property taxes – something which Burnham has previously expressed an interest in. 

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The example of other countries with more mature systems of multi-level governance show that it is perfectly possible to couple greater fiscal autonomy with interregional solidarity through mechanisms that support regions with weaker starting points. 

How far he is willing to go on tax decentralisation will be the key litmus test for Burnham’s devolution agenda. Regardless of his mayoral credentials, the devolved governance of England will struggle to mature without it. 

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