Allowing councils to administer and retain taxes generated locally would boost funding for services by more than £4 billion in many areas and “supercharge” economic growth, a new analysis suggests.
The report argues that new fiscal arrangements which enable authorities to a proportion of revenue from income tax, stamp duty and the apprenticeship levy alongside a new tourist tax could prove transformational and support the delivery of the Government’s priorities.
The County Councils Network, which commissioned the report, stressed the proposals do not advocate tax rises and acknowledged that a process of redistributing tax revenue would need to be established to address regional variations in the amounts generated.
Deputy Prime Minister Angela Rayner recently said she wanted “more push” towards fiscal devolution as part of the Government’s pledge to transfer central decision making to local areas.
The English Devolution White Paper published last year states that mayors could submit proposals for new powers, such as fiscal devolution, which the government is obliged to consider.
The guidance recently published alongside the the Devolution and Community Empowerment Bill earlier this month stipulates that new strategic authorities can pilot devolved powers to make it “easier to deepen devolution over time”.
The 20 CCN councils, including top tier shire authorities and unitaries, serve about 45% of the population and contributed almost £390 billion in national tax receipts in 2022/23, the report said.
This level of county revenues amounted to 44% of the revenue total for England of £891.3 billion, rising to 57% if London’s contribution is not taken into account.
This includes contributions of 62% in income tax and and 55% in VAT.
The analysis found that expenditure in county areas totalled £273 billion, amounting to a net benefit to the exchequer of £113.6 billion a year.
The report said allowing authorities to retain “better than expected” income tax growth could raise £3.8 billion in county areas annually and would “dramatically incentivise” local job creation.
Retaining half of stamp duty on new homes could provide about £237 million and encourage councils to deliver more housing, the analysis showed, while a tourist tax set at £2 a night could generate about £209 million in extra annual revenue.
If county and unitary councils were granted 10% of funds from the apprenticeship levy generated locally, councils could direct an estimated £120 million a year to skills and growth.
The report concluded that these measures combined could raise about £4.4 billion in county areas, which equates to 10% of an average budget for these authorities, while nationally the figures are about £8.9 billion a year.
Richard Roberts, CCN’s economic growth spokesman, said the research “warrants serious consideration from government and from existing mayors”.
He added: “There has never been a better time to consider empowering local areas with fiscal devolution and let’s be clear: this is not about new taxes for local residents and businesses. It’s about using existing taxes more effectively, allowing local areas who understand what’s needed to drive growth to invest to that end.
“More pressingly, there is the shared local and central government need to increase growth, create jobs and build homes alongside the urgency to invest in local economic growth services and infrastructure.
“The potential revenue generated from the fiscal devolution options modelled in this report would be a game-changer for local areas, allowing them to invest in growth and incentivise areas to maintain productivity gains.
“Whilst there will still be a need for central government to a play a redistributive role to ensure equity across regions, we have long argued counties are the backbone of the economy.
“Now is the time for Government be bold and ambitious and think about unleashing the potential of counties.”
London Councils, which represents the 32 boroughs in the capital, said authorities’ current reliance on council tax and government grants perpetuates unsustainable financial stress.
Claire Holland, chairwoman of London Councils, said: “Devolving more fiscal powers to a local level is crucial for fixing this broken system and ending the crisis in council finances.
“With more autonomy and flexibility – such as powers to introduce an overnight accommodation levy – we would be in a much stronger position to respond to our communities’ needs and encourage economic growth.
“London is the powerhouse of the UK economy, but still faces immense challenges around productivity, unemployment, and poverty, as well as an enormous £500 million funding gap in boroughs’ budgets.
“Fiscal devolution could help us tackle these issues and maximise London’s contribution to the country’s future prosperity.”
