Fiscal devolution: real money with unfinished machinery

This is the biggest change to how English regional government is funded in a generation. But mayors are being given a share of national taxes, not the power to set them and whether that works depends on rules the Government has not yet written; namely how money is equalised between rich and poor areas, who scrutinises it, and how it fits with local government reorganisation.

What the Budget does

The Fiscal Devolution Roadmap, first trailed by Rachel Reeves, sets out the new funding model. Baselines for income tax assignment will be set at the 2027 Spending Review.

The business rates share is a swap for existing grants, not new money. The gain for mayors is the 20% of growth. Income tax assignment matters more as the Treasury intends it to replace almost all mayoral grants.

Assignment, not devolution

Mayors will not set any tax, and our view is that two design questions will decide whether that is a good bargain.

Equalisation - Areas start from very different tax bases. Assigning only basic-rate tax narrows the gap, because higher-rate receipts are concentrated in London, the South East and the East. The Government will consider extending assignment to higher-rate tax, if it does, the reset and floor rules will matter as much as the headline share.

Accountability - if income tax goes straight from HMRC to authorities, it bypasses the Consolidated Fund and direct parliamentary scrutiny. The roadmap promises new local accountability arrangements, but money that leaves Parliament's line of sight needs a clear replacement: strong scrutiny committees, published outcomes, and audit capacity the local system is still rebuilding. We consider this essential if this is to be a success.

Devolution and reorganisation: parallel, not joined up

The Government is in the final stages of ten new devolution deals. Mayoral strategic authorities are planned for Devon, Plymouth and Torbay; Hertfordshire; Lancashire; Leicester, Leicestershire and Rutland; Stoke and Staffordshire; Surrey; Thames Valley; and Wessex. Cornwall gets a foundation strategic authority. Kent and Medway gets a strategic authority that will be mayoral only if its reorganisation outcome allows. The overlap with local government reorganisation is large. Six of those areas, including Kent and Medway, had July reorganisation decisions withdrawn on 29 October, and the Thames Valley footprint includes Oxfordshire's new minded-to decision. The day after the Budget, Jim McMahon told the Commons that mayoral authorities work best "underpinned by strong unitary councils".

So the two programmes are not entirely decoupled. They run side by side, and in Kent one explicitly depends on the other. The practical result is that some new strategic authorities will be set up around councils whose boundaries are still undecided, and may change again before the first mayor is elected.

Our view

The direction is right, tying mayoral income to local earnings gives mayors a real reason to grow their economies, and moving from fragmented grant funding towards assigned and retained tax revenues is potentially much simpler. The Treasury deserves credit for setting dates.

But the hard parts have been deferred to the 2027 Spending Review and a Rewiring the State paper due by the end of this year. Three things should be settled there, not left to later guidance.

1. Publish the equalisation rules early. Mayors cannot plan on a tax share whose baseline, floor and reset period they do not know. Draft rules should be out for consultation well before SR27 so areas can model them.

2. Set out accountability before the money moves. Moving from detailed grant control towards assigned tax revenues requires a correspondingly robust accountability system. Government has already proposed Local Accounting Officers and Local Scrutiny Committees, but the Rewiring the State Delivery Plan needs to settle the wider framework: what mayors report, how performance is scrutinised, how audit operates and how intervention works where financial or service performance deteriorates.

3. Sequence devolution and reorganisation into a clear timetable. Ministers should publish a single timetable showing, for each area, when the council map is fixed, when the strategic authority is created, and when the first mayor is elected. Building a strategic authority on a council map that may change is an avoidable risk.

Capacity is the quieter risk. £150m is welcome, but new strategic authorities will be hiring finance, investment and scrutiny staff at the same time as reorganising councils need the same people. Without a workforce plan, that money moves talent around rather than adding it.

What authorities should do now

We have spoken to a number of colleagues in the sector since the announcements and our advice has been broadly along these lines:

1. Existing mayoral authorities should model their exposure now: the value of grants being replaced from April 2027, the value of their proposed 20% share of locally retained business rates and 20% share of subsequent growth, and the strength of their basic-rate income-tax base relative to current funding. That evidence will matter when SR27 baselines are set.

2. The ten new deal areas move to local consultation next. Their governance design should assume that council boundaries may still change, and build in the scrutiny and finance functions that fiscal devolution will need.

3. Councils should press for a voice in the SR27 settlement. Their share of business rates rises to at least 70%, and they deliver most local services, yet the roadmap is written largely around mayors.

The Government aims for every part of England to be covered by devolution by the end of 2028. That leaves two years to write the rules that will make the money work, so there is much to be done.