Higher economic growth in the UK requires big changes. Tackling the persistent underperformance of Manchester and Birmingham, as well as the stagnation of London’s economy since the financial crisis, are some of the changes needed to improve national prosperity.  

One of the reasons for their poor performance is the British state’s internationally exceptional level of centralisation, which limits the ability of local government to drive economic change. Yet although a political consensus for further devolution exists, progress has been limited as there is little clarity on how to deliver devolution at scale, especially for taxation.  

This report aims to change this by proposing a new approach to English devolution. 

The next phase of devolution should take the form of a ‘triple deal’ negotiated between the government and the Mayors of Greater Manchester, the West Midlands, and London. At its core would be fiscal devolution that would reconnect local resource to local growth, and would be revenue neutral for the mayors and national government.  

This can be achieved with: 

• Devolution of a share of income tax to the mayors, with Greater Manchester and the West Midlands keeping a larger share than London. Higher growth in these cities would lead to higher annual revenues, with Greater Manchester raising between £49 million and £230 million; the West Midlands raising £40 million and £187 million, London raising between £2 million and £27 million, and Treasury raising £161 million and £505 million in additional income tax revenues every year by 2038. 
• Complete retention of all business rates revenues and control over the multiplier;  
• Replacing all the grants that councils and the mayors receive from Whitehall with a single grant for each mayor; and, 
• Council tax reforms to give 74 per cent of households in each city, and a majority in every borough, an average tax cut of £637 a year. 

In sum, grants from central government would reduce but in return for greater autonomy over spending, full retention of business rates, as well as the ability to keep a portion of income tax revenue. Although up for negotiation, Figure 1 gives an example of a possible new funding mix for London, Manchester and Birmingham and their boroughs.

Figure 1: A new funding mix for London, Greater Manchester and the West Midlands

In a medium growth scenario, we estimate Greater Manchester and the West Midlands could raise £152 million and £121 million respectively by 2038 in income tax alone, with the Treasury also increasing its overall revenues. 

But further devolution to improve economic growth will also require changes to powers and governance. The triple deal should therefore consider:

• Planning reform for the mayors, and control over commuter railways, A and B roads, and city centre licensing, in addition to police powers for the Mayor of the West Midlands and other smaller changes to responsibilities. 
• Establishing London-style devolution for the metro mayors, electoral reform for the mayors and boroughs, and committing in future to better alignment between political and economic geography as devolution is extended to the rest of England.