Income tax devolution must 'work for London', says mayor

The Mayor of London Sir Sadiq Khan has welcomed the government's intention to devolve some income tax revenue to local leaders but added it must "work for London".

Prime Minister Andy Burnham announced plans on Friday that will give mayors a share of income tax revenue and business rates collected in their areas.

However, there is no detail on how much money will be devolved in this way, and the details will not be announced until the budget in the autumn.

Susan Hall, leader of the City Hall Conservatives, said: "Conservative mayors would actually give taxpayers a break, further showing off how much Labour likes to tax the living daylights out of anyone they can."

The government also wants to give greater control over services such as housing, transport and skills to local mayors.

Prof Tony Travers of the London School of Economics said the proposed income tax sharing plan "won't give London more money on day one".

He added: "What would happen is a grant that is now given to London would be withdrawn, and pound for pound a share of income tax given to the city.

"However, if then the economy grew and, with it, the tax revenues grew, then it would provide more money - and the mayor might be able to borrow against this share of income tax, allowing bigger projects to go ahead."

English metro mayors are expected to start retaining some revenue from business rates from April 2027 and receive a portion of income tax from April 2028.

If London were to retain 1% of the £71bn in income tax raised in the capital last year, that would work out at around £700m.

The rates of income tax - for example, the basic rate of 20% on income from £12,571 to £50,270 - will not change as a result of the reform.

A spokesperson for the mayor of London said: "Sadiq has always believed that mayors are best placed to unlock growth, create opportunity and improve the lives of the people they serve.

"But he is also clear that any new mechanisms to decentralise England must work for London, which is the engine of the national economy, driving growth across the country.

"The mayor continues to work closely with ministers on plans to introduce a tourist levy that would be reinvested in London's economy."

Hall said: "Labour mayors will spend the money on silly projects - [Sir Sadiq] Khan is something of an expert when it comes to that, and I fear this policy will end up being more of the same."

The Liberal Democrats warned the plans risked "creating a postcode lottery" that would leave millions of people living in rural areas "short-changed and underfunded".

Reform UK said the prime minister should "fully devolve the power to stop the housing of illegal migrants in local communities".

The government said it will retain a system of equalisation so that areas benefit from local growth while funding remains fair across the country, similar to those in place for business rates retention and local government finance.

Anthony Breach, director of policy and research at Centre for Cities, said London contributes about £43bn more in taxes to the exchequer than is spent by central government in the capital.

He added: "London does play a globally important role - it is always going to be a net contributor to the UK public finances.

"How can we make sure London does support the rest of the country without damaging incentives here in London?

"Having a system where everyone gets to keep more of their growth means that every part of the country can do a bit better."

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