English mayors are set to gain a share of locally raised income tax and keep more business rates revenue under a new devolution package. For small firms, the immediate significance is not a change to their tax bill, but the prospect of more regional control over transport, skills, planning and business investment.
The government says mayors will start retaining a greater share of locally generated revenue from next spring, beginning with business rates. A share of income tax is expected to follow, although the exact proportion and the funding formula have not yet been decided. More detail is promised in a roadmap at the autumn Budget.
What has been announced?
The package is designed to reduce English regions’ reliance on grants from Whitehall and allow them to retain more of the proceeds when their local economies grow. It covers mayors of city regions, while areas without a mayor are expected to gain powers through strategic authorities.
Alongside the revenue changes, local leaders are due to receive wider control over housing, transport, skills, employment support and regeneration. The government says mayors will have more freedom to back local industries, unlock stalled development sites and shape training around the needs of employers.
The BBC reports that English strategic authorities are expected to retain some business rates revenue from April 2027, with a portion of income tax following from April 2028. Income tax rates themselves are not due to change because of the reform.
Why this matters to small businesses
For SMEs, the potential value lies in how the new powers are used locally. Better bus, rail and tram services could widen the pool of people able to reach workplaces and town centres. More responsive skills funding could make it easier for colleges and training providers to build courses around shortages identified by local employers.
Planning and regeneration powers may also affect firms looking for premises or depending on busy high streets and town centres. Faster decisions on transport and stalled development could create opportunities for construction businesses, professional services and suppliers, as well as improve local trading conditions.
However, none of those benefits is automatic. The policy is intended to reward local economic growth, which raises questions about how places with smaller tax bases will be protected. The government is developing an equalisation system, but the formula has not yet been published. Opposition parties and some local representatives have warned that rural and less prosperous areas could lose out if the safeguards are weak.
What SMEs should watch next
Business owners do not need to change their tax arrangements in response to this announcement. Instead, they should look for the practical decisions that follow it.
- The autumn Budget roadmap: this should explain how much revenue will be retained locally, which authorities qualify and how funding will be balanced between regions.
- Local skills plans: employers struggling to recruit should watch for consultations on 16-to-19 training and employment support, and make their needs known through local business groups.
- Transport priorities: firms affected by poor connections, congestion or unreliable commuting routes should follow their mayoral or strategic authority’s investment programme.
- Planning and regeneration: retailers, hospitality businesses, trades and property-related firms may see new local programmes as authorities receive greater freedom to unlock sites and revive town centres.
- Procurement opportunities: devolved investment can create contracts for smaller suppliers, but firms will need to monitor regional procurement portals and ensure their tender documents are ready.
A policy direction, not yet a finished funding system
The announcement marks a substantial shift in where decisions may be made, but many of the details that determine its effect on SMEs remain open. Businesses should be wary of assuming that new tax-raising powers or immediate funding increases have already been confirmed.
The useful step now is to identify the relevant mayoral combined authority or strategic authority, subscribe to its business updates and take part when it consults employers. The firms most likely to benefit will be those that engage early on skills, infrastructure and local investment priorities rather than waiting until programmes are already designed.
