Burnham to propose income tax share for London mayors

London mayors could soon keep a portion of the income tax revenue generated in the capital under plans to be announced by Prime Minister Andy Burnham this week. The proposal would mark a shift from the current system, where 95% of tax revenue raised in England goes directly to Whitehall.

Sadiq Khan, the Mayor of London, welcomed the announcement, calling it a step toward empowering local leaders. He told the Local Democracy Reporting Service that Burnham was "walking the walk" on devolution, a policy the new prime minister championed during his time as mayor of Greater Manchester.

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London’s funding gap

The Greater London Authority’s £23.9bn budget is currently less than a quarter funded by business rates and the mayoral precept portion of council tax. The rest comes from central government grants, leaving City Hall dependent on Whitehall for over three-quarters of its spending.

A 2019 City Hall report found that London retains a far smaller share of its tax revenue than other global cities. New York and Tokyo keep 50% and 70% respectively, while London’s share is significantly lower. The report argued that greater local control over tax revenues would help drive growth and shared prosperity.

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John Dickie, chief executive of BusinessLDN, said the current system had created a "begging bowl" relationship with the Treasury. He added that giving local leaders more financial autonomy would allow them to invest in transport and development, unlocking further growth.

The country does well when London succeeds, but London does well when the rest of the country succeeds as well. It’s not a zero-sum game.

Sadiq Khan, Mayor of London

No new tax-raising powers

Despite the proposed changes, it is understood that mayors will not receive new tax-raising powers. Khan’s plan to introduce an overnight accommodation levy, which would tax visitors staying in London hotels, remains under consultation with no confirmed implementation date.

Khan said the capital could "do even more with more powers and resources devolved to London," but acknowledged that the distribution of funding across the UK must remain equitable. He emphasised that London’s success benefits the entire country, not just the capital.

What happens next

Burnham will outline the details of the income tax proposal this week. The government has not yet specified what share of revenue would be retained locally or how the system would be implemented. BusinessLDN and other groups are expected to work with ministers and City Hall to shape the reforms.

The consultation on Khan’s overnight accommodation levy remains open. No timeline has been set for its potential introduction.