The UK government aspires to boost regional growth by letting local leaders retain a share of tax revenues such as income tax and business rates. Scotland’s experience suggests that any benefits of such fiscal devolution will depend on the design of its core financial and institutional arrangements.
The UK government has announced an ambition to give mayors of city-regions in England a share of income tax revenues and greater control over business rates. This represents a significant development in the nation’s devolution journey, with more details to be set out in the ‘fiscal devolution roadmap’ that is due for publication alongside the Autumn Budget in late October.
The argument is straightforward: allowing local leaders to benefit financially when their economies grow will strengthen their incentives to promote economic development and make them more accountable for the decisions that they take.
But will greater fiscal devolution deliver these benefits? Scotland’s experience suggests that the answer will depend less on the transfer of tax revenues itself and more on the financial and institutional arrangements that accompany it.
Scotland’s experience
At its inception in 1999, the Scottish Parliament controlled substantial public spending but raised relatively little of the revenue needed to finance it. Subsequent reforms, particularly following the 2014 referendum on Scottish independence, substantially expanded its tax and social security powers.
Today, the Scottish government controls rates and bands of income tax on earnings and pensions, alongside several smaller taxes. The experience offers three important lessons.
First, a fundamental but often overlooked point: fiscal devolution does not automatically translate into stronger economic growth. Possessing policy levers and deploying them effectively are two distinct matters.
Local politicians pursue multiple objectives, including redistribution and improving public services. Successive Scottish governments have used their powers to pursue distinctive policies, particularly on income tax and social security, but their wider economic performance has been mixed.
Giving policy-makers a greater financial stake in growth does not guarantee that they will prioritise it or that their policies will be effective. For example, while former first ministers of Scotland Alex Salmond and Nicola Sturgeon were both from the same political party, they had very different views on both the nature and importance of economic growth. Devolution to multiple mayoral authorities will lead to elected politicians with – perhaps – quite different views on the economy from those of the incumbent government in Downing Street.
Second, implementation takes time. It has taken around ten years for the powers promised in 2014 to be implemented. Even then, there remain some gaps. For example, the ambitious objective of assigning VAT revenues to Scotland has proved technically challenging and has been kicked into the long grass.
Transferring revenues is considerably more complicated than announcing a political commitment to do so. If Scotland’s experience is any guide, it will take several years before local politicians are in charge of local revenues.
Third, institutions matter. Scotland already had an established parliament and administrative structures before receiving substantial tax powers. There are over 8,000 people employed in the devolved Scottish civil service, a number that has grown significantly in order to administer new fiscal powers.
The devolution of these powers has also led to the creation of new specialist institutions, including Revenue Scotland and the Scottish Fiscal Commission. Establishing comparable capabilities across the regions of England would require significant investment, specialist expertise and coordination. These institutions would also take time to become fully established.
Technical decisions with big implications
One seemingly straightforward question is particularly important: who counts as a regional taxpayer?
In Scotland, income tax liability depends primarily on where someone lives rather than where they work. Applying similar rules to city-regions in England, with their extensive commuting flows and closely connected labour markets, will be considerably more complicated.
For example, should income tax generated by someone living in Cheshire but working in Manchester contribute to the city’s budget? The answer matters because the intention is to reward local policy-makers for strengthening their economies.
There is also an important distinction between assigning tax revenues and giving local authorities control over tax rates. The former might provide additional incentives without changing taxpayers’ liabilities. The latter creates genuine policy autonomy but also introduces behavioural responses, including incentives to relocate or change how income is received.
It’s worth noting that technical challenges were also an issue for the ‘earn-back’ approach in Greater Manchester, which sought to link fundingto local economic performance. In that case, the challenges related to the complexity of the formula used to calculate payments.
The broader point evident there and in Scotland is that designing devolved fiscal arrangements that align local incentives with economic growth is not straightforward.
Who bears the risk?
Perhaps Scotland’s most important lesson concerns the balance between risk and reward.
Much of the narrative has spoken of regional politicians benefiting from faster economic growth in their locality. But what about when things don’t turn out as well as hoped?
Under Scotland’s fiscal framework, what matters is not simply whether Scottish income tax revenues increase. Instead, the budget benefits when devolved revenues grow faster than the corresponding revenues in the rest of the UK; and the budget loses when devolved revenues grow more slowly.
Scotland has raised additional revenue through higher income tax rates, but relatively weak growth in the nation’s underlying tax base has offset some of these gains. The Scottish Fiscal Commission estimates that this relative tax-base performance gap amounted to nearly £900 million in 2024/25.
The decline in North Sea activity illustrates one of the risks highlighted by Scotland’s experience of fiscal devolution. The loss of relatively highly paid employment has weakened Scotland’s income tax base compared with the UK overall, reflecting structural changes in the sector over which the Scottish government has limited control.
Similar risks would arise across England. A major factory closure, sectoral downturn or demographic shift could weaken a region’s tax base and reduce its revenues, even where these developments are largely beyond the control of local policy-makers.
These risks become particularly important when devolved revenues are used to finance essential public services. Income tax receipts may weaken during economic downturns precisely when demand for support increases.
What questions must England answer?
None of this is an argument against fiscal devolution. Rather, Scotland demonstrates that transferring revenues is only the beginning.
An agreed fiscal framework would have to set out how much autonomy local leaders will actually gain and how the financial consequences are to be distributed.
Figure 1: England's Mayoral Strategic Authorities, October 2026.
Source: Cabinet Office (2026)
Several important questions will need to be addressed as England moves towards greater fiscal devolution:
- What is being devolved: a share of nationally determined tax receipts or meaningful control over tax policy?
- How will revenues be allocated, particularly where people live, work and spend across regional boundaries?
- What happens to existing grants? Will devolving revenues provide additional resources or simply replace central government funding – and if the latter, how will that funding be adjusted/reduced?
- How should risks and rewards be shared? How much exposure to weaker economic performance should regions face – and what protection should be provided against asymmetric shocks beyond their control?
- How will inequalities between places be managed (both at the outset of devolution and over time)? Could fiscal devolution reinforce existing regional disparities – and what role should equalisation play?
- Who will provide the necessary institutions and scrutiny? How will revenues be forecast, errors reconciled and political accountability maintained?
These are not just technical details to be resolved after political agreement. They get to the heart of the politics and policy debate with devolution. These details will determine whether fiscal devolution genuinely empowers regional leaders, improves accountability and strengthens economic performance.
Scotland’s experience offers England an important advantage in designing its devolution plans, enabling these issues to be considered before, rather than after, the powers are transferred and in light of practical experience in the UK.
Where can I find out more?
- Devolution on existing devolution: Burnham’s blind spot? An August 2026 blog post by David Waite, Graeme Roy Stuart McIntyre and James Mitchell.
- The missing jigsaw pieces of Burnham’s devolution push: An August 2026 blog post by David Waite and Graeme Roy.
- Scotland’s Economic and Fiscal Forecasts: January 2026 report from the Scottish Fiscal Commission.
- Careful what you wish for? Risk and reward with Scottish tax devolution: A 2022 study by Stuart McIntyre, James Mitchell and Graeme Roy, published in Political Quarterly.
- Two cheers for Holyrood: devolution and dimensions of fiscal accountability: A 2025 study by James Mitchell, Stuart McIntyre and Graeme Roy, published in British Politics.
- Fiscal devolution and the accountability gap: budget scrutiny following tax devolution to Scotland: A 2022 study by Stuart McIntyre, James Mitchell and Graeme Roy, published in Regional Studies.
