Andy Burnham’s No 10 North is reportedly working on plans to hand workers and firms tax “rebates” from local revenue – a shift from the Prime Minister’s previous insistence that such a scheme would not be possible.
It comes after the Burnham announced last month that mayors would be given a share of income tax and business rates revenue for the first time, as part of what No 10 called the “biggest transfer of power” from Westminster to the regions “in a generation”.
But when the plans were first unveiled, ministers played down the idea of rebates specifically, with Burnham saying the devolution changes were not about turning mayors into “a sort of mini-chancellor of the exchequer”.
A change in stance could mean modest payouts for some workers – but at a cost to local investment.
What’s changed
When Burnham announced his devolution plans in July, mayors were told they would be able to keep a share of income tax and business rates generated in their areas, to spend on growth projects such as housing and transport.
But Ben Houchen, the Conservative mayor of Tees Valley, signalled he wanted to go further. Speaking to The i Paper earlier this month, he said: “We continue to explore a tax rebate scheme for residents if the Prime Minister presses ahead with fiscal devolution.”
Now, according to The Sunday Times, Houchen is working with senior staff at No 10 North on a formal “tax rebate” scheme – handing money straight back to workers and firms rather than reinvesting it in public services.
The Reform mayor of Hull and East Yorkshire, Luke Campbell, is reported to be considering a similar approach.
This marks a shift from Burnham’s original position. At the policy’s launch, he said the plans were not about turning mayors into “a sort of mini-chancellor of the exchequer”.
Louise Haigh, the Cabinet Office minister responsible for devolution, was more blunt, telling BBC Radio 4’s Today programme in July that such rebate schemes were “certainly” not possible under current HMRC rules.
How much could workers get?
Houchen has suggested a rebate worth “1, 2, 3 per cent” of a worker’s income tax, provided they can prove they are employed by a Tees Valley business, The Sunday Times reported.
The average salary in Tees Valley is £33,850 a year.
Based on the standard personal allowance and basic rate of income tax, that salary generates a tax bill of around £4,256 a year – meaning a rebate at Houchen’s suggested rates would be worth roughly £43 at 1 per cent, £85 at 2 per cent, or £128 at 3 per cent.
Houchen has also floated a business rates rebate, telling The Sunday Times: “[If you’re] a business in Tees Valley, you can apply to us to get, say, 5 per cent back on your business rates.”
What’s the catch?
The pot of money mayors are set to receive from income tax and business rates was originally intended to fund housing, transport and skills projects, according to the Government’s own announcement of the fiscal devolution policy.
If mayors like Houchen use some of that money for rebates instead, it would come directly out of the same pot – meaning less available for the housing and transport schemes it was designed to pay for.
A Government spokeswoman told The Sunday Times that any mayor using the funds for “complicated and administratively burdensome grants” would have to be “upfront” that doing so meant “cutting investment in transport, housing and other services”.
There is also a practical hurdle. Haigh had previously said schemes like Houchen’s would require HMRC to build “entirely new administrative systems” before they could work.
She told The i Paper: “There’s not a system that would currently allow that” – meaning even if ministers agree to rebates in principle, the tax authority may not yet be equipped to deliver them.
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