Andy Burnham, the imminent new Prime Minister, is reportedly exploring a major overhaul of Income Tax, potentially introducing a regional system in England where tax rates would be set locally rather than by central government. The plan follows Sir Keir Starmer's announcement on Monday that he would step down as Labour leader, after Burnham's landslide victory in the Makerfield by-election.
Devolving tax powers to regions
Lord Jim O'Neil, who served as an economic advisor to Burnham during his tenure as Mayor of Greater Manchester, told LBC that devolving taxes is “definitely something that would be on the agenda to study in a serious way.” He identified business rates and income tax as two possible levies that could be devolved to regions, describing the redistribution of power away from London as “badly needed.”
While no detailed proposals have been released, the concept mirrors the US system where income tax is handled at the state level. In the US, 41 states tax earnings: 14 apply a single tax rate, while 27 use graduated rates with multiple brackets. Some states impose no income tax at all.
Comparison with Scotland's devolved tax system
The UK already has a precedent for devolved income tax in Scotland, which sets different rates from England. In England, the basic rate of 20% applies to earnings above £12,570, rising to 40% above £50,270. In Scotland, the starter rate is 19% on earnings between £12,570 and £16,537, then increases in increments: 20%, 21%, and 42% on earnings above £43,663—a lower threshold for the higher rate.
Chancellor Rachel Reeves, expected to be replaced if Burnham becomes PM, declined to comment on her future. “I’m not going to pre-empt the decisions that the new prime minister will make,” she told the BBC. “I’m backing Andy. I think he’d be a great prime minister, but those are his decisions, not mine to make.”
Speculation over Burnham's Cabinet
Burnham has reportedly not yet chosen his Chancellor, though Energy Secretary Ed Miliband is a leading candidate. However, some Labour figures have cautioned against his appointment. Chief Secretary to the Prime Minister Darren Jones appeared to suggest Miliband would not meet his “tests” to run the Treasury.
