Fiscal devolution: Roadmap is a good starting point

The consensus on last week's Budget appears to be forming: that it consisted of many small measures – from money off gherkins to £100 to help with the cost of living – that taken together did not amount to much. There were certainly no big-ticket tax rises or spending cuts. But in one area at least, it was far more consequential. This will be the Budget where fiscal devolution really started to take shape.But did the ‘fiscal devolution roadmap' live up to its promise? As a starting point, yes. But not as an end state.The roadmap provided some, but by no means all, of the specifics awaited by policy wonks. Mayoral Strategic Authorities (MSAs) will get to keep a certain number of pence in the pound of income tax, but this will be accompanied by an equalisation adjustment that brings them in line with an allocated starting point. Above this, they will be able to keep any above average growth in their income tax base.But it is notable that the actual changes to the design of business rates at the Budget came from the Government. Control of business rates as a tax – the multipliers, thresholds and reliefs – still sit at the centre. Local leaders will be able to vary the rate of the overnight visitor levy, recognising the importance of local discretion, but broader rate varying powers over local taxes still seem some way off.This is coupled with several safeguards: a growth tapering mechanism, a safety net, and a system of ‘rolling resets' to protect areas from shocks and avoid big gaps between places opening up. Details such as the actual amounts, the baseline and taper levels, and the length of the reset periods are yet to be decided.Fiscal devolution was always going to involve a trade-off between the strength of the reward for growing local tax bases and the risk of areas with slower growth and greater structural challenges being further left behind. But when all's said and done, the combination of the equalisation adjustment, the taper for high growth areas, and the rolling resets might make the potential gains minimal.The roadmap also contained a commitment to full local retention of business rates by the end of the decade, with mayors integrated into the system. Both local councils and mayors will stand to gain extra revenue from local business growth.But this also comes with a caveat: the resets which periodically equalise business rates in line with need will continue, meaning that at some point places will lose out on the growth they've secured. This is why ‘business rates retention zones' may take on an increasingly important role, as 100% of business rates growth in a zone can be retained regardless of resets, usually for a period of 25 years.The Government announced it was taking forward nine of these to start with. One, in Camden, will use ‘Tax Increment Financing' – where future gains in revenue are earmarked to pay back the borrowing that financed them – for underground upgrades. One of the advantages of fiscal devolution done right is that it should enable more things to get built in this way.But it is notable that the actual changes to the design of business rates at the Budget came from the Government. Control of business rates as a tax – the multipliers, thresholds and reliefs – still sit at the centre. Local leaders will be able to vary the rate of the overnight visitor levy, recognising the importance of local discretion, but broader rate varying powers over local taxes still seem some way off.Given this, it is positive the roadmap states explicitly that this only represents the beginning for fiscal devolution. There is an ambition to go further in the future as devolved institutions mature and take on new responsibilities.For now, the most significant implication of the roadmap may be the movement away from tightly controlled grants handed down from central government, and the discretion this unlocks to genuinely pursue local priorities and try new things.MSAs will no longer simply be creatures of central government policy but have their own independent financial existence. Crucially, there is the promise of a more strategic relationship with central government to replace the many strings that come even with the integrated settlements, which were meant to mean more flexibility. And the implications for Whitehall in terms of becoming a more streamlined centre as responsibilities are devolved is also acknowledged.Completing the map of devolution will be vital if Whitehall is to let go of some functions in a wholesale way. The Budget also revealed several new mayoral authorities are in the final stages of being negotiated.These newly announced authorities differ in scale, with some covering single counties. Many of England's strategic authorities are much smaller than the properly regional institutions of other countries. While starting small and working with the grain of existing local identities might be a move to ensure the whole country is covered, collaboration around connectivity and economic development is likely needed over a broader geography. Out of this, in time, we may see properly regional scale institutions emerge.For one of most centralised countries in the world, all this adds up to a significant break with the past. But the end goal should be a more ambitious settlement, with more local freedom over tax rates and more revenue growth kept locally. A good starting point, but not the finish.Alex Walker is head of programme (local state) at Re:State

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FISCAL DEVOLUTION

Fiscal devolution: Roadmap is a good starting point

By Alex Walker | 04 November 2026

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