UK ministers consider devolving billions in business rates to regional mayors

The UK government is considering one of the most significant reforms to the English tax system in recent years: devolving billions of pounds raised from business rates to regional mayors. Steve Reed, the local government secretary, confirmed that the government is working on plans to devolve the tax, which has sparked protests from pubs and other hospitality businesses.

The proposal is part of a wider push by Chancellor Rachel Reeves to shift tax income to local leaders, though her position is uncertain amid questions about Keir Starmer's premiership. However, the plans are likely to be pursued by Andy Burnham if he becomes prime minister, given his commitment to devolution.

Reed told the Guardian that the government is also looking at devolving aspects of income tax. However, he stressed that an equalisation mechanism is necessary to prevent poorer areas from falling further behind, as simply allowing areas to keep what they raise could worsen regional inequality. The system would reward areas that grow their economies faster.

Business rates raised £26.4bn last year. While ministers are not considering handing over the entire sum, even a small percentage could significantly boost mayoral budgets. For comparison, London Mayor Sadiq Khan has the largest mayoral budget at just over £22bn.

In addition, the chancellor is consulting on implementing a tourist tax – a supplemental levy on hotel, holiday let, and B&B stays. The tax was promised in last year's budget, and officials are deciding whether it should be a flat fee or a percentage of the cost, though mayors will not set the rates themselves.