Ministers Consider Handing Billions in Business Rates to England's Regional Mayors
In what could amount to one of the most significant restructurings of the English tax system in recent memory, government ministers are actively exploring plans to devolve billions of pounds raised through business rates directly to regional mayors. The move, which signals a bold shift in how public finances are distributed across England, forms part of a broader government agenda to give local areas substantially more control over key public services including justice, health, and education.
Local government secretary Steve Reed confirmed that work is underway on the devolution plans, placing business rates reform at the centre of a wider push to empower England's regions. The announcement comes at a politically charged moment, following a wave of protests from pubs and other hospitality businesses frustrated by the current business rates structure — a system widely criticised as outdated, burdensome, and poorly aligned with the realities of modern commerce.
What Are Business Rates and Why Do They Matter?
Business rates are a form of property tax levied on non-domestic properties in England, including shops, offices, warehouses, factories, and pubs. Businesses pay rates based on the estimated rental value of their property, a figure set by the Valuation Office Agency. The tax generates tens of billions of pounds annually and has long been a critical source of funding for local government services.
However, business rates have attracted sustained criticism from business owners and industry groups alike. Many argue the system is inflexible and fails to account for fluctuating trading conditions, placing disproportionate financial pressure on high street retailers and hospitality venues. Pubs in particular have been vocal critics, arguing that the rates they pay bear little relation to their actual profitability, especially in the wake of rising energy costs and shifting consumer habits.
Under the current system, business rates are collected locally but pooled and redistributed centrally by the Treasury. This centralised approach has long been a source of tension between local councils and central government, with many local leaders arguing they have insufficient financial autonomy to respond to the specific needs of their communities.
What Would Devolution of Business Rates Actually Mean?
If ministers proceed with their proposals, regional mayors — such as those governing Greater Manchester, the West Midlands, and the West Yorkshire Combined Authority — could receive a direct share of business rates revenue generated within their areas. Rather than funds flowing upward to Whitehall before being redistributed, they would remain within the region where they are raised, giving local leaders a stronger fiscal base from which to invest in infrastructure, skills, and public services.
Proponents of this model argue it would create stronger incentives for regional leaders to grow their local economies. If a mayor attracts new businesses or supports existing ones in expanding, the resulting increase in business rates income would accrue directly to their region rather than disappearing into a central pot. This alignment of economic incentives with local decision-making power is considered by many economists and urban planners to be a prerequisite for genuinely effective regional growth strategies.
The plans are also understood to be part of a broader devolution agenda that would extend greater local control over areas including criminal justice, health commissioning, and education. Together, these reforms could represent a substantial shift in the balance of power between central and local government in England — a country that has historically been among the most centralised in the developed world.
The Political and Business Context
The timing of the announcement is significant. The hospitality sector has grown increasingly vocal in its criticism of the current business rates system, with pub landlords and restaurant owners staging protests and lobbying hard for reform. The government previously faced calls for a U-turn on aspects of its business rates policy following pressure from the sector, and ministers will be keen to demonstrate that structural reform — rather than piecemeal relief — is on the horizon.
For regional mayors, many of whom have already accumulated significant powers over transport, housing, and economic development, this would represent another meaningful expansion of their remit. Metro mayors have increasingly emerged as influential political figures in their own right, and greater control over tax revenues would further cement their role as credible engines of economic leadership outside London.
Opponents of devolution, however, caution that giving regions control over tax income could lead to greater inequality between prosperous and less prosperous areas, with wealthier regions generating more rates revenue and therefore enjoying a compounding fiscal advantage. Addressing this concern — likely through some form of equalisation mechanism — will be one of the central policy challenges ministers must resolve before any final proposals are brought forward.
What Happens Next?
While Steve Reed's comments confirm that serious planning is underway, the proposals are still at a formative stage. The government will need to work through a range of complex questions around how rates would be allocated, how equalisation between regions would function, and what implications the changes would have for local councils that currently rely on business rates funding.
- Consultation with regional mayors and local authorities is expected to intensify in the coming months.
- The Treasury will play a key role in determining how any devolved system interacts with existing funding settlements.
- Business groups, particularly in the hospitality sector, will be watching closely to see whether devolution is accompanied by wider structural reform of how rates are calculated and levied.
- Parliament will ultimately need to legislate for any significant changes to the business rates framework.
For businesses across England, the prospect of a more locally responsive tax system may be welcome in principle, but the detail will matter enormously. Whether devolved business rates lead to lighter burdens, smarter investment, and more dynamic regional economies will depend on how ministers navigate the considerable political and fiscal complexity that lies ahead. What is clear is that the conversation about England's economic geography — and who gets to shape it — is entering a new and consequential chapter.