Devolve Tourist Taxes Government Urged

Devolving housing, income and tourism taxes to England’s counties could raise more than £4bn a year to invest in local services and supercharge economic growth, a new report reveals.

The research from Grant Thornton UK, commissioned by the County Councils Network (CCN), argues that giving fiscal devolution powers to county and unitary councils across England could be ‘transformational’. These would not take the form of tax rises but would instead decentralise a proportion of locally-raised revenue, giving local leaders the financial firepower to invest in growth, create jobs and build homes.

With government pursuing a ‘devolution by default’ policy and looking to conclude devolution deals for all areas of England, the report urges ministers to go even further. Last week, the Deputy Prime Minister Angela Rayner said she wanted to see ‘more push’ towards fiscal devolution for councils.

Responding to the report, the CCN says that the report puts forward a vision to take devolution to the next level, urging government to be ‘bold and ambitious’ in considering its proposals. Allowing areas the ability to retain a slice of income tax, stamp duty and the apprenticeship levy, plus the introduction of a tourist tax, would be a win-win for both central and local government.

It would help fulfil the government’s missions whilst generating a yearly £4.4bn investment pot for councils and a powerful incentive to increase productivity as proceeds would increase if the local economy performed well. They could give areas an income stream in which to invest in growth-related services such as transport, skills, infrastructure, tourism and even filling in potholes.

Although all counties would benefit from fiscal devolution, the report shows that some areas are able to raise more than others. Therefore, CCN says that whilst introducing multiple measures can smooth disparities, there will still be the need for central government to redistribute funding for local government across all four corners of the country – and these measures will be complimentary rather than a replacement to existing government funding to local authorities.

The report Fiscal devolution: exploring the options in England’s counties finds that the county areas generate the lion’s share of revenue for the Treasury, compared to the rest of country.

In 2023, they raised almost £390bn – 57% of England’s total excluding London. This includes 62% of income tax, 55% of VAT, and 57% of social contributions, excluding the capital. The report finds that expenditure in those areas totalled £273bn, meaning they generate a net boost to the exchequer of £117bn a year. In just seven out of 37 counties, identifiable expenditure was higher than revenue raised.

But with England remaining one of the most centralised countries in the G7, much of this revenue is taken for national pot for the Treasury. Today’s report sets out some options for how a greater proportion of money can be retained locally, without raising national taxation:

Giving local areas the ability to retain any better-than-expected income tax growth could raise £3.8bn a year for county areas and could dramatically incentivise job creation.

The introduction of a flat-rate tourist tax, common throughout the world – and even at a rate of just £2 a night – would generate around £209m in extra revenue in county areas per year.

If councils were empowered to keep just 10% of locally-generated Apprenticeship Levy funds, local areas would be able to more accurately direct around £120m a year to support local skills and growth ambitions.

Taken together, these measures could raise close to £4.4bn in county areas, which is around 10% of an average county authority’s budget. Nationally, these measures could raise around £8.9bn a year.

The CCN argues that there has ‘never been a better time’ to be radical and think about giving fiscal devolution powers to unleash the potential of England’s counties.

In addition, the report comes hot on the heels of the government’s Spending Review and 10-Year Infrastructure Plan. With economic forecasters predicting sluggish national growth, the CCN says that devolved powers could address weaknesses in local areas and turbocharge growth, giving government a vital helping hand. The English Devolution White Paper sets out that mayors can submit proposals for new powers, such as fiscal devolution, which the government will have a duty to consider.

Cllr Richard Roberts, Economic Growth Spokesperson for the County Councils Network, said:
“Today’s report from Grant Thornton shows the art of the possible for fiscal devolution and we believe these proposals warrant serious consideration from government and from existing mayors. There has never been a better time consider empowering local areas with fiscal devolution and let’s be clear: this is not about new taxes for local residents and businesses. It’s about using existing taxes more effectively, allowing local areas who understand what’s needed to drive growth to invest to that end.

“More pressingly, there is the shared local and central government need to increase growth, create jobs and build homes alongside the urgency to invest in local economic growth services and infrastructure. The potential revenue generated from the fiscal devolution options modelled in this report would be a game-changer for local areas, allowing them to invest in growth and incentivise areas to maintain productivity gains.”

“Whilst there will still be a need for central government to a play a redistributive role to ensure equity across regions, we have long argued counties are the backbone of the economy. Now is the time for government be bold and ambitious and think about unleashing the potential of counties.”