Ministers are considering handing over billions of pounds raised by business rates to regional mayors in England, in a move that would shift control of one of the country’s most important local taxes away from the centre. Steve Reed said the idea is being looked at, but is not yet a worked-up policy.
The timing matters because Rachel Reeves has already signalled a wider push to give regional leaders a bigger share of national tax power. In her Mais Lecture earlier this year, she said she was working on plans to let them control a share of some national taxes, and officials are now looking at how to devolve different pieces of the tax system, including business rates and parts of income tax.
Reed said the chancellor had pointed to devolving aspects of income tax, and that the government was also looking at business rates, or elements of business rates. That leaves open the central question in the plan: what, exactly, would move out of Westminster government hands and what would stay behind. The answer matters because business rates currently bring in £5.8billion, and even a partial handover would change how much money regional leaders could control directly.
Reed was clear that local areas would not simply keep everything they raised. “There will always have to be an equalisation mechanism,” he said, adding that poorer areas could not be left to sink because they cannot generate the same revenue from their starting point. He said the system would need to reward places that grow their economy faster or support their businesses better, so that success is recognised rather than punished.
That is where the friction in the plan sits. A promise to devolve tax power sounds simple until the government decides how to stop wealthier areas racing ahead while weaker ones fall further behind. An equalisation system would have to move money around after the tax is collected, which means mayors may gain more control over the local economy but not full control over the cash they raise.
Business rates have become politically sensitive after many small businesses saw their taxable rates rocket following a revaluation after the Covid pandemic, and the issue has drawn protests from pubs and other hospitality businesses. The broader agenda also stretches beyond business rates: the plans form part of a wider push to give mayors more power over justice, health and education, and the chancellor is also consulting on how to implement a tourist tax.
For now, the clearest reading is that the government is testing the boundaries of fiscal devolution rather than unveiling a finished settlement. Reed said, “The sky’s the limit … nothing is off limits,” but he also said the proposal remains an idea being looked at. The next step, if there is one, will be whether Rachel Reeves turns that broad ambition into a concrete package in the budget.
