Rachel Reeves has announced that the Treasury will draw up proposals to hand England\u2019s mayors a share of national tax revenues as part of a radical plan to rebalance the economy.<\/p>\n
The chancellor promised \u201ca genuine break with the past\u201d that would shift spending power away from Westminster, as she promised to create investment-led growth across the UK.<\/p>\n
Reeves was delivering the Mais lecture \u2013 the second time she has given the high-profile annual address at Bayes Business School in London.<\/p>\n
It is no coincidence that the UK is \u201cthe most politically centralised of advanced democracies, and one of the most geographically unequal\u201d, Reeves said.<\/p>\n
Treasury officials will bring forward a plan at the autumn budget to allow regional leaders to receive a share of national taxes, starting with income tax, she added.<\/p>\n
Reeves also announced new city investment funds worth \u00a32.3bn for England\u2019s regional \u201cmetro\u201d mayors to spend on long-term investment projects, adding that they would be able to retain future business rates revenue.<\/p>\n
Reeves\u2019s chief economic adviser, Neil Amin-Smith, wrote a research paper<\/a> while at the Institute for Fiscal Studies that examined the case for the devolution of taxes and suggested income tax was the right place to start.<\/p>\n The chancellor called her approach \u201ca permanent transfer of power and resources, not another exercise in local ambition frustrated by central government control\u201d.<\/p>\n Local authorities across the UK have faced a severe funding squeeze in recent years, and several big councils have been forced into bankruptcy.<\/p>\n Aditi Sriram, an economist at the Institute for Public Policy Research, said: \u201cGiving regions a share of tax revenues, including income tax, is the missing piece of the UK\u2019s devolution settlement. Extending devolution to include funding, alongside powers, is essential to unlock the long-term investment needed to drive regional growth.\u201d<\/p>\n Reeves acknowledged that she was giving the hour-long lecture at an \u201canxious moment\u201d, as the impact of the Iran conflict threatened to harm the global economy<\/a>, but she vowed to press ahead with Labour\u2019s growth plans.<\/p>\n She said recent events, including the Middle East conflict, had confirmed that, as she had stated in her first Mais lecture two years ago: \u201cGlobalisation as we once knew it is dead.\u201d<\/p>\n She conceded that the Iran war was \u201clikely to put upward pressure on inflation\u201d in the coming months but said the UK was in a stronger position than in the run-up to the Ukraine war in 2022, with inflation lower and the public finances improving.<\/p>\n Without mentioning Donald Trump by name, Reeves stressed that \u201cthe single best way to protect families and businesses from rising energy prices is a swift end to the conflict in the Middle East\u201d.<\/p>\n She underlined three strategic choices the government was making in its efforts to boost growth: a closer trading relationship with the EU; more support for the \u201cgrowth corridors\u201d between Oxford and Cambridge and Liverpool and York; and a bet on the benefits of AI.<\/p>\n She said the government would pursue a closer relationship with Brussels, pointing to recent research suggesting that Brexit may have depressed GDP growth by as much as 8%.<\/p>\n \u201cNo trade deal with any individual nation can outweigh the importance of our relationship to a bloc with which we share a large border, and with which all supply chains are closely intertwined, and which accounts for almost half of our trade,\u201d she said.<\/p>\n Reeves struck an optimistic note about the economic outlook for the UK despite the looming energy crisis, highlighting the country\u2019s record as the world\u2019s second-largest exporter of services with strong creative, energy and pharmaceuticals sectors.<\/p>\n