English regional mayors are set to receive a share of income tax revenue for the first time under a fiscal devolution programme intended to move funding and decision-making away from Westminster. The reform is expected to begin with a share of locally generated business rates from April 2027, followed by income tax revenue from April 2028.
For construction, the significance is not that tax rates are changing or that a new national building fund has already been announced. It is that mayoral strategic authorities could gain a more predictable connection between the economic activity generated in their regions and the money available to support housing, transport, skills, regeneration and infrastructure.
That could help regional leaders build longer investment pipelines, coordinate housing with transport and utilities, support public-estate and social-housing retrofit, and potentially strengthen the revenue base behind infrastructure finance. But the exact tax shares, grant-replacement arrangements, borrowing rules and equalisation system will not be known until the autumn Budget and accompanying policy paper.
LCM assessment: Fiscal devolution could become one of the most important structural changes affecting regional construction funding in England. Its value will not come from a new tax or an immediate spending windfall, but from giving mayors greater control over longer-term revenues alongside existing powers over housing, strategic planning, transport, skills and regeneration. The opportunity is real, but it depends on the autumn Budget confirming sufficient revenue, fair equalisation, usable borrowing capacity and protection against central grants simply disappearing pound for pound.
Jump to: What has been confirmed | How the funding model changes | Why construction should care | Housing | Retrofit | Infrastructure and transport | Borrowing and investment | Skills and local supply chains | What it means for London | Equalisation and weaker economies | Delivery risks | What to watch next | LCM verdict | FAQ
What Has Been Confirmed and What Has Not
| Policy Element | Reported Position | Expected Timing | Construction Relevance | Outstanding Detail |
|---|---|---|---|---|
| Business-rate revenue | Mayoral strategic authorities are expected to retain a greater share of business rates generated in their regions. | From April 2027 | Could link commercial growth, regeneration and development more directly to regional investment capacity. | The precise share, baseline, reset rules and relationship with existing grants. |
| Income-tax revenue | English mayors will receive an assigned share of income tax raised from residents in their areas. | From April 2028 | Could provide a broader and more predictable revenue stream for long-term regional programmes. | The percentage assigned to each area and whether the formula varies between regions. |
| Income-tax rates | The reform concerns allocation of existing revenue rather than changing the income-tax rates paid by residents. | No rate change announced | The policy is a funding and governance reform, not a new construction levy. | Whether mayors will later receive any limited flexibility over locally assigned tax revenues. |
| Central grants | Tax revenues are expected to replace at least some existing central-government grants. | To be designed through the Budget settlement | More local control may improve programme planning even where total funding does not initially increase. | Whether any region receives genuinely additional net spending power. |
| Equalisation | Government intends to protect areas with weaker tax bases through a needs-based equalisation mechanism. | Details expected with the autumn Budget | Critical to ensuring construction investment is not concentrated only in the strongest regional economies. | The formula, guarantees, transition period and treatment of future growth. |
Evidence warning: The announcement creates a new direction for regional finance, but it does not yet identify a national value for additional construction investment. Income-tax assignment, business-rate retention, grant replacement and equalisation must be assessed together before any region can calculate its true net gain.
How the Funding Model Could Change
Most English mayoral authorities currently depend heavily on grants and funding settlements controlled by central government. Those grants can be short term, ringfenced for specific purposes or awarded through programmes that require regions to compete repeatedly for Whitehall approval. The new model is intended to move part of that funding relationship towards assigned tax revenues. Rather than every pound being raised nationally and then redistributed through departmental decisions, a defined share of income tax and business rates generated within a region would flow to its mayoral strategic authority.
This is not the same as giving mayors unrestricted power to set income-tax rates. The reported reform allocates part of existing national tax receipts while leaving the underlying rates unchanged. The practical change is who controls the resulting revenue and how directly regional growth can influence future regional resources.
The UK remains unusually centralised by international standards. Analysis published by Re:State using OECD data estimated that only 5.8% of national taxes are collected at subnational level in the UK, compared with substantially larger shares in several other major economies. The House of Commons Library has also noted that fiscal devolution proposals would require careful equalisation because identical tax shares would produce very different revenues across England. The government had already begun moving in this direction before Burnham entered Downing Street. Existing 2026–27 funding guidance stated that options included giving mayoral strategic authorities a direct share of business rates, allowing more locally generated tax to remain where it was raised and providing mayors with a share of regional economic growth.
Why Construction Should Care About Tax Assignment
Construction is affected by the quality and predictability of public revenue long before a tender is published. Housing sites, transport schemes, regeneration programmes and public-estate upgrades can take years to assemble. They require land, planning, design, business cases, utility coordination, consultation, finance and procurement before visible work starts. Short funding settlements can force regional bodies to divide activity into small programmes, delay design expenditure or wait for the next competitive grant. A more stable revenue stream could allow mayors to prepare longer pipelines and make commitments across several financial years.
This matters because English mayoral strategic authorities now have statutory functions and powers across transport, local infrastructure, housing, strategic planning, skills, economic development and regeneration. They must also produce Local Growth Plans containing regional priorities and an investment pipeline. LCM’s earlier analysis, Burnham’s Construction Plan: Where the Work, Cash and Risks Are, argued that the construction opportunity lies in joining housing, transport, utilities, regeneration and skills into place-based delivery plans. Fiscal devolution could provide part of the financial operating system required to make that model credible.
The construction significance is conversion. If mayors can match longer-term revenue with statutory planning, housing and transport powers, regional strategies may become more investable. If the reform merely replaces grants with an equally uncertain tax formula, it will change accounting without materially improving delivery.
Housing Could Become the First Major Test
Housing is the most direct construction opportunity because mayoral strategic authorities already influence strategic planning, growth areas, transport integration and the regional priorities of the Social and Affordable Homes Programme.
Established mayoral strategic authorities can shape the tenure mix and identify priority sites under the 2026–36 Social and Affordable Homes Programme. A more predictable regional revenue base could complement that national grant funding by supporting the work that often determines whether housing sites become buildable.
| Housing Requirement | How Devolved Revenue Could Help | Potential Construction Work | Important Limitation |
|---|---|---|---|
| Brownfield enabling works | Regional funding could address abnormal costs that housing grant alone does not fully cover. | Demolition, remediation, utilities, roads, drainage, earthworks and site preparation. | Revenue assignment does not guarantee that sufficient capital will be allocated to each site. |
| Affordable and council housing | Mayors could coordinate national housing grant with local land, infrastructure and regeneration priorities. | New homes, estate infrastructure, public realm, community facilities and long-term maintenance. | Housing delivery still depends on viable grant rates, borrowing, land and capable delivery bodies. |
| Stalled development | Regional authorities could target infrastructure or viability gaps preventing consented schemes from starting. | Revised design, enabling packages, access works, utilities and phased construction. | Public support should not absorb unlimited private development risk. |
| Town-centre housing | Housing, transport and regeneration spending could be planned as one place-based programme. | Conversions, mixed-use development, public realm, transport access and service upgrades. | Change of use, viability and building-safety constraints remain project-specific. |
The policy also builds on an existing shift towards mayor-led housing delivery. LCM’s analysis of the role of mayors in unlocking stalled housing and transport projects found that stronger political authority only becomes valuable when regional bodies possess the finance, technical capacity and infrastructure coordination needed to move projects from consent to site.
Could the Reform Support Retrofit?
Retrofit has not been allocated a specific share of the new revenues. It should therefore be treated as a potential regional priority rather than a confirmed funded programme. The opportunity is nevertheless credible. Mayors and constituent councils control or influence extensive public estates, social housing, transport assets, regeneration areas and town-centre programmes. More flexible multiyear revenue could support surveys, business cases, match funding and capital programmes for improving existing buildings.
Potential activity could include social-housing energy upgrades, façade and roof renewal, fire-safety works, mechanical and electrical replacement, heat decarbonisation, school and civic-estate improvement, accessibility adaptations and the conversion of vacant commercial property. LCM’s review of London’s £120bn retrofit race found that large upgrade programmes require more than environmental targets. They require stable clients, surveys, design evidence, resident coordination, procurement capacity and dependable funding across several years.
Fiscal devolution could help with those conditions by allowing regional authorities to combine local revenue with national grants and private or institutional capital. But retrofit will still compete against transport, housing, social care and other regional priorities. The existence of assigned tax revenue does not guarantee that building upgrades will receive the first call on it.
Infrastructure and Transport Could Gain Longer Visibility
The infrastructure case is strongest where regional projects generate wider economic activity but struggle to obtain long-term funding. Transport interchanges, bus infrastructure, local highways, active-travel networks, flood resilience, utilities and development-enabling works can unlock housing and employment sites that would otherwise remain unviable. Local Growth Plan guidance already requires mayoral strategic authorities to identify an investment pipeline and coordinate it with spatial development, transport and skills plans. A stable share of tax revenue could make those pipelines more credible to contractors, investors and public financial institutions.
The connection between infrastructure and development is especially important. A housing site may depend on a road junction, a new school, drainage capacity or a grid connection. A town-centre regeneration programme may require public realm and transport improvements before private development becomes viable. London Construction Magazine’s assessment of the London Infrastructure Framework found that fragmented sequencing between utilities, transport, housing and borough delivery can become a construction-risk multiplier. Fiscal devolution will matter if it helps regional authorities fund and coordinate those interfaces earlier.
Predictable Revenue Could Strengthen Infrastructure Borrowing
Long-term revenue is valuable not only because it can be spent directly. It can also improve the ability of public bodies to plan finance, service debt and enter longer contractual commitments. Reporting on the proposal indicates that the government intends the reforms to help mayoral authorities borrow against future revenue for major infrastructure. The detailed borrowing framework has not yet been published, so this should not be treated as an unrestricted new power.
The principle is important. A defined, durable share of income tax or business rates could support investment where the asset is built now but the economic and tax benefits emerge over many years. That is potentially relevant to transport, regeneration, housing infrastructure, energy systems and public-estate programmes. The Treasury will still need to control affordability, accounting treatment, debt limits and downside risk. LCM’s analysis of the pressure that national borrowing places on public-sector construction showed why new infrastructure commitments must be matched by credible revenue, contingency and delivery controls.
For contractors, the important test is not whether a regional strategy contains an attractive project. It is whether the client has secured sufficient funding for design, land, enabling works, inflation, construction risk and the full contracted scope.
Skills Funding Could Be Linked More Closely to Regional Work
Mayoral strategic authorities already have responsibilities across skills and employment support. Fiscal devolution could improve the connection between regional construction pipelines and the training needed to deliver them. A region planning large programmes of council housing, rail work, retrofit or energy infrastructure should be able to identify the trades, technicians and professionals it will require. Training budgets, colleges, employer partnerships and procurement commitments can then be aligned with that demand.
This could support apprenticeships, adult retraining, site placements and targeted programmes for bricklaying, groundworks, building services, retrofit coordination, engineering, surveying and construction management. The risk is that skills programmes become disconnected from actual contract awards. Training people for an announced pipeline that is delayed or commercially unviable will not solve regional employment or construction capacity. Funding, procurement and employer demand must move together.
What Income-Tax Devolution Could Mean for London
The Greater London Authority is included within the system of mayoral strategic authorities, although London has a distinct governance and funding settlement. The capital already operates with enhanced business-rate retention arrangements, and official guidance requires the GLA to produce a Local Growth Plan alongside other mayoral regions. London’s large income-tax and business-rate base means even a small assigned share could appear substantial. That does not mean all locally generated revenue would remain in the capital. The equalisation mechanism is likely to redistribute part of the benefit to protect places with weaker economies and greater relative need.
For London construction, the most credible uses would include housing-enabling infrastructure, transport, estate renewal, retrofit, regeneration and utilities. The capital’s major schemes frequently depend on coordination between the GLA, boroughs, Transport for London, utilities, government departments and private developers. More predictable mayoral revenue could reduce dependence on one-off funding negotiations and help assemble multiyear programmes. It could also create stronger regional procurement visibility for contractors and specialists working across housing, transport, public realm and building upgrades.
However, London also faces high project costs, complex land, building-safety requirements and substantial infrastructure needs. A large nominal tax allocation may still be insufficient relative to the cost of delivery. The autumn settlement must therefore be judged against the capital programme it is expected to support rather than the headline tax value alone.
Equalisation Will Determine Whether Weaker Economies Lose Out
The main economic risk is straightforward: wealthier regions and places with larger employment bases generate more income tax and business rates. If assigned tax revenues simply replace grants without a strong equalisation system, areas with weaker economies could receive less money precisely because they have the greatest need for regeneration and infrastructure.
The government has said relative local needs will be considered, but the formula has not been published. A credible system will need to distinguish between a region’s underlying tax capacity, its spending needs and the additional revenue created through future growth. If every extra pound of regional growth is immediately removed through grant reductions, the incentive for local economic development weakens. If too much locally generated revenue is retained without redistribution, regional inequalities could widen.
| Design Question | Why It Matters | Construction Consequence | Required Protection |
|---|---|---|---|
| How much grant is replaced? | Determines whether the reform increases resources or only changes their source. | Affects the scale and timing of capital programmes. | Transparent baseline and transition calculations. |
| How is need measured? | Housing pressure, deprivation, infrastructure deficits and service demand vary significantly. | Without adjustment, high-need areas may struggle to fund regeneration. | A published needs-based equalisation formula. |
| Who keeps future growth? | Mayors need a meaningful incentive to expand employment and the local tax base. | Could influence investment in commercial sites, transport and regeneration. | A defined period during which regions retain part of additional growth. |
| How is volatility managed? | Tax receipts can fall during recessions or sector-specific shocks. | Unstable revenue could delay procurement or undermine borrowing assumptions. | Safety nets, reserves and multiyear guarantees. |
The Delivery Risks Behind the Opportunity
Not automatically new money: assigned tax receipts may replace grants rather than increase the overall resources available to a region.
Unequal tax bases: stronger economies will generate more revenue unless the equalisation system deliberately protects weaker places.
Revenue volatility: income tax and business rates can fall during economic downturns, creating uncertainty for long-term programmes.
Local delivery capacity: mayors and councils still need experienced planners, engineers, surveyors, commercial teams and programme managers.
Project immaturity: revenue alone cannot solve incomplete design, land ownership, planning, utilities or building-safety evidence.
Political prioritisation: housing, transport, retrofit, skills and public services will compete for the same devolved resources.
Borrowing exposure: debt supported by future tax revenue must remain affordable if growth forecasts prove optimistic.
Uneven geography: areas without established mayoral structures may enter the system later or receive a different settlement.
What Construction Should Watch in the Autumn Budget
The income-tax percentage: the precise share assigned to each mayoral strategic authority and whether the formula is uniform across England.
Business-rate retention: how the April 2027 system interacts with existing retention pilots, resets, baselines and safety nets.
Grant replacement: which central grants will be reduced, consolidated or removed as tax revenues are transferred.
Equalisation: the protection offered to places with weaker tax bases and greater housing or infrastructure needs.
Borrowing rules: whether mayors can borrow against assigned revenues and what affordability controls will apply.
Capital flexibility: whether devolved revenue can support housing, retrofit, transport and enabling infrastructure or remains restricted.
London’s settlement: how the GLA’s existing arrangements and large tax base will be treated within the national equalisation system.
Early investment pipelines: which mayoral authorities convert the reform into named, costed and procurement-ready projects.
LCM Verdict: A Potential Funding System for Regional Construction, Not Yet a Construction Fund
Giving English mayors a share of income tax and business-rate revenue could change the way regional construction programmes are assembled. The strongest benefit is not necessarily a larger annual budget on day one. It is the possibility of greater local control, longer financial visibility and a clearer link between regional economic growth and regional investment. That matters because mayors already possess or are gaining powers across housing, planning, transport, skills and regeneration. Local Growth Plans must contain investment pipelines, while established mayoral authorities can influence affordable housing priorities. Fiscal devolution could connect those responsibilities to a more durable source of revenue.
The construction opportunity extends across brownfield infrastructure, council and affordable housing, social-housing retrofit, public-estate renewal, transport, public realm, utilities and skills. It could help regions fund the enabling work that sits between political ambition and a viable construction contract. But the announcement must not be exaggerated. The tax shares are unknown. Some grants may be withdrawn. Borrowing powers have not been fully defined. Revenue will vary sharply between places, and the equalisation system will decide whether weaker economies are protected or penalised. The autumn Budget will therefore determine whether this becomes a meaningful new operating model for regional construction or simply a new method of distributing largely unchanged resources.
Final LCM assessment: Income-tax devolution could give English mayors the financial visibility needed to coordinate housing, retrofit and infrastructure as connected regional programmes. The direction is potentially transformative. The proof will be in the net funding, equalisation, borrowing rules and the number of regional investment pipelines that move from strategy into procurement and visible work on site.
Frequently Asked Questions
What has the government announced for English mayors?
English mayors are expected to receive a greater share of locally generated business-rate revenue from April 2027 and a share of income tax revenue from April 2028.
English mayors are expected to receive a greater share of locally generated business-rate revenue from April 2027 and a share of income tax revenue from April 2028.
Will income-tax rates increase because of the reform?
No increase in income-tax rates has been announced as part of the reform. The proposal concerns assigning a share of existing tax revenue to mayoral strategic authorities.
No increase in income-tax rates has been announced as part of the reform. The proposal concerns assigning a share of existing tax revenue to mayoral strategic authorities.
How much income-tax revenue will each mayor receive?
The government has not yet confirmed the percentage or detailed allocation formula. Further information is expected alongside the autumn Budget.
The government has not yet confirmed the percentage or detailed allocation formula. Further information is expected alongside the autumn Budget.
Is this additional money for regional construction?
Not necessarily. The assigned tax revenue is expected to replace at least some central-government grants. The net change in spending power will depend on the final settlement.
Not necessarily. The assigned tax revenue is expected to replace at least some central-government grants. The net change in spending power will depend on the final settlement.
Will local councils receive the income-tax share directly?
The initial policy is focused on mayoral strategic authorities. Constituent councils could benefit through regional housing, transport, regeneration and infrastructure programmes, but the detailed distribution arrangements remain outstanding.
The initial policy is focused on mayoral strategic authorities. Constituent councils could benefit through regional housing, transport, regeneration and infrastructure programmes, but the detailed distribution arrangements remain outstanding.
Could income-tax devolution support new housing?
Potentially. Mayors could use greater financial certainty to coordinate affordable housing grant, brownfield infrastructure, transport, land and regeneration. No dedicated housing allocation has yet been confirmed from the new tax revenues.
Potentially. Mayors could use greater financial certainty to coordinate affordable housing grant, brownfield infrastructure, transport, land and regeneration. No dedicated housing allocation has yet been confirmed from the new tax revenues.
Could the money be used for retrofit?
Retrofit is a credible potential use, including social-housing, public-estate and town-centre upgrades. However, no specific retrofit funding has been guaranteed through this announcement.
Retrofit is a credible potential use, including social-housing, public-estate and town-centre upgrades. However, no specific retrofit funding has been guaranteed through this announcement.
How could fiscal devolution help infrastructure?
Longer-term assigned revenue could improve investment planning, support development-enabling works and potentially strengthen the ability to finance transport and infrastructure over several years.
Longer-term assigned revenue could improve investment planning, support development-enabling works and potentially strengthen the ability to finance transport and infrastructure over several years.
What could the reform mean for London?
The Greater London Authority could gain greater control over locally generated revenue, but London’s settlement will depend heavily on the national equalisation formula and the treatment of its existing business-rate arrangements.
The Greater London Authority could gain greater control over locally generated revenue, but London’s settlement will depend heavily on the national equalisation formula and the treatment of its existing business-rate arrangements.
Could weaker regional economies lose funding?
Yes, without effective equalisation. Areas with smaller tax bases would generate less income-tax and business-rate revenue, so the government has said relative need will be considered in the final system.
Yes, without effective equalisation. Areas with smaller tax bases would generate less income-tax and business-rate revenue, so the government has said relative need will be considered in the final system.
What details must the autumn Budget confirm?
The Budget must define the tax shares, grant replacement, equalisation formula, borrowing rules, transition arrangements, spending flexibility and treatment of areas without established mayoral authorities.
The Budget must define the tax shares, grant replacement, equalisation formula, borrowing rules, transition arrangements, spending flexibility and treatment of areas without established mayoral authorities.
Sources and methodology: This analysis was prepared using information available on 31 July 2026. The new announcement was checked against Reuters reporting on the income-tax and business-rate devolution plan. The pre-existing fiscal devolution framework was reviewed against the House of Commons Library briefing, Could Andy Burnham let mayors raise more taxes?, the government’s Mayoral Strategic Authority funding guidance, the English Devolution and Community Empowerment Act announcement, official Local Growth Plan guidance and the Social and Affordable Homes Programme 2026–36 guidance. International context was reviewed against the OECD Fiscal Decentralisation Database and the Re:State fiscal devolution analysis summarised in the House of Commons Library briefing. Confirmed policy, reported implementation dates and LCM editorial inference are distinguished throughout. No unannounced tax percentage, construction allocation, borrowing limit or guaranteed regional project has been presented as fact.
|
Expert Verification & Authorship: Mihai Chelmus
Founder, London Construction Magazine | Construction Testing & Investigation Specialist |
