Chancellor John Healey’s 2026 Autumn Budget and the Fiscal Devolution Roadmap puts local and regional government at the heart of Government’s plans for growth.

The Budget proposes a major change to the architecture of English devolution: income tax assignment to Mayors, greater business rates retention, a power for all Strategic Authorities to introduce an Overnight Visitor Levy, long-term business rates growth zones, and new local investment and borrowing tools, alongside ten new devolution agreements.

Its significance is the shift from dependence on Whitehall grants towards locally linked revenues and investment decisions, but most measures remain subject to legislation, funding baselines and detailed design.

Headline announcements

• From April 2027, Mayors will enter the business rates retention system, receiving a 20% share of locally retained business rates and a permanent 20% share of growth. This replaces Investment Funds, Mayoral Capacity Funding and Local Growth Funds.
• By the end of the decade, there is an intention for local and regional government to retain 100% of business rates income instead of central grants, with local authorities retaining at least 70%. The Government will seek views from local government and intends to publish a Call for Evidence later in the year.
• From April 2028, there will be income tax assignment for all Mayors replacing central grants. Fiscal devolution baselines will be set at the 2027 spending review. The Budget does not confer power to set income tax rates or specify the assigned percentage.
• Overnight Visitor Levy: legislation via the Overnight Visitor Levy Bill will enable all Strategic Authorities, mayoral and foundation, to introduce a levy. Local leaders are to be able to set out investment plans by March 2028.
• Nine first-wave Business Rates Retention Zone areas, subject to full business cases and legislation. Relevant billing authorities can retain 100% of growth above baseline for 25 years.
• Good Growth Funds: £285m in 2027/28 (£165m for mayoral places; £120m incubator capital for areas transitioning towards a devolution deal or Strategic Authority status), a £1.5bn Mayoral Strategic Authority (MSA) borrowing facility from April 2028 (to be developed with MSAs, including concessional lending), and £150m capacity funding uplift in 2027/28.
• The Government is now in the final stages of agreeing 10 new devolution agreements which will mean over 90% of England’s population will have a devolution agreement in place. These are:
  • Mayoral Strategic Authorities for Devon, Plymouth and Torbay; Hertfordshire; Lancashire; Leicester, Leicestershire and Rutland; Stoke and Staffordshire; Surrey; Thames Valley (Oxfordshire, Berkshire and Swindon); and Wessex;
  • A Strategic Authority for Kent and Medway which will be Mayoral if the area’s Local Government Reorganisation outcome is compatible with this and Foundation if not;
  • A single Foundation Strategic Authority for Cornwall.

The Government will continue discussions with the remaining areas with a view to agreeing a Strategic Authority as soon as possible, with the aim of achieving full devolution coverage by the end of 2028.

Why this matters for devolution

The Budget proposals could alter the incentives of Mayors, Combined Authorities, Combined County Authorities and Constituent Councils. Regional growth may translate more directly into revenues available for transport, housing, regeneration and economic infrastructure. Longer-term retention zones could make difficult development schemes more investable, while Good Growth Funds could combine grants, loans, public financial institutions, pension capital and private finance.

The institutional consequence may be as important as the funding: stronger strategic authorities, greater expectations of financial capability, and more complex agreements with billing authorities about who bears risk and who receives the benefits of growth.

Fiscal devolution

Income tax model: each Mayoral Strategic Authority would receive a bespoke starting allocation in 2028/29 reflecting existing funding, newly devolved responsibilities, regional disparities and tax-base strength. After that, a uniform pence-in-the-pound share of local basic-rate income tax on earnings, self-employment and pensions is assigned, based on where taxpayers live. The case for assigning some higher-rate income is under review. Mayors will not set rates or thresholds but will have wide flexibility over spending.

Tax assignment: income tax remains nationally determined, but a share of receipts is attributed to Mayors. This strengthens the link with economic performance without necessarily creating tax autonomy.

Income tax assignment will be reserved for areas with a directly elected mayor. Foundation Strategic Authorities gain the Overnight Visitor Levy but remain grant-funded, and new Mayoral Strategic Authorities created part-way through a Spending Review will be grant-funded until they can join the system.

Tax retention: councils and mayors keep more business rates revenue, but central rules may still govern the tax base, multipliers, reliefs, equalisation and resets. A larger retained share may be offset by grant reductions.

Local taxation: the Overnight Visitor Levy could offer a genuinely locally raised revenue stream. The consultation response points to real local discretion: no nationally prescribed or maximum rate, a percentage charge on paid overnight stays and local decisions on how revenue is invested. But rates cannot vary by accommodation type, locality or season, and the power still awaits legislation.

Business rates: opportunity and risk

The 100% retention ambition is striking, but the Budget explicitly says this will be in place of grants.

The Budget also widens Small Business Rates Relief for retail, hospitality and leisure properties (100% relief threshold raised from £12,000 to £18,000 and tapered relief from £15,000 to £21,000, from April 2027) and removes certain reliefs from vape shops and adult gaming centres; how relief compensation is treated in a higher-retention system will directly affect net income.

The special retention zones are different from the general scheme. In approved zones, relevant billing authorities retain 100% of growth above an agreed baseline for 25 years. The nine proposed areas are Greater Manchester, East Midlands, Hull and East Yorkshire, Liverpool City Region, Tees Valley, West of England, North East, York and North Yorkshire, and Greater London. Cambridgeshire and Peterborough is being considered for a zone from 2028.

Existing arrangements, including the Leeds city-centre zone and the 100% retention pilots in Cornwall, the West of England and Liverpool City Region (extended to 2028–29 at Autumn Budget 2025), will need to be reconciled with the new scheme. Foundation Strategic Authorities and areas moving towards devolution may also put forward zone proposals, subject to exceptional economic additionality, and a business-rates-based Tax Increment Financing mechanism is proposed at Euston.

For the East Midlands, the Budget expressly identifies Derby as a potential beneficiary.

Overnight Visitor Levy

This is potentially the clearest new tax power in the package. A Strategic Authority levy could help fund visitor infrastructure, transport and place investment, particularly in tourism-intensive economies. But it is not yet a live charging power: the Overnight Visitor Levy Bill must first be enacted. Much of the design is already settled by the consultation response which was published on 10 September 2026.

Foundation as well as Mayoral Strategic Authorities may levy and authorities must consult before introducing it. There is no national rate or cap and only limited local exemptions are permitted (such as tent and touring caravan pitches and hostels) and receipts and spending must be reported annually.

Elsewhere in the Budget

Green Book

For local authorities, the changes to the Green Book and the investment announced alongside the Budget include:

• a greater focus on place-based investment, rather than looking at projects solely in isolation;
• greater scope to consider the relationship between projects, for example where housing, transport and regeneration form part of a wider programme;
• less reliance on a single benefit-cost ratio when determining whether an intervention represents value for money; and
• closer alignment between Treasury appraisal and the Government’s wider aim of delivering economic growth across the country.

The Budget includes a series of smaller local investments, including:

• £10 million for a new market hall in Stafford;
• £10 million for the Market Quarter in Bristol;
• £20 million towards the restoration of Liverpool’s Littlewoods building; and
• investment in projects including Gateshead Quayside and Doncaster Sheffield Airport.

The combination of Green Book reform and fiscal devolution should be particularly important for councils putting together long-term regeneration programmes. Authorities will want to consider whether existing business cases and investment pipelines make full use of the greater emphasis on wider, place-based benefits.

“Local leaders shouldn't have to come cap in hand to Whitehall to build a new tram or concert hall,” the Chancellor told the House of Commons.

VAT on electricity bills

The Budget contains immediate measures designed to bring down energy costs.

• The temporary reduction in VAT on household electricity to 0% will now run until July 2027, rather than ending in March 2027. The Government expects this to reduce the annual Ofgem price cap by around £50 in April 2027.
• A new £2.6 billion Household Energy Payment will provide £100 directly to households in England in council tax bands A to D, starting in January 2027 and supporting up to 20 million households.
• From April 2027, the British Industrial Competitiveness Scheme will provide around 10,000 energy-intensive manufacturing businesses with a 20 to 25% electricity discount, including a back payment for 2026/27.

Councils and registered providers that pay electricity bills on behalf of tenants should consider the effect of the VAT reduction on their arrangements and service charges.

Minimum wage

The Budget includes a further increase in statutory minimum pay rates:

• the National Living Wage will increase by 3.9%;
• the National Minimum Wage for 18 to 20-year-olds will also increase by 3.9%; and
• around 2.3 million workers are expected to benefit.

For local authorities, the impact will not necessarily be limited to directly employed staff. Councils should also consider knock-on effects across commissioned services and contracts where suppliers employ significant numbers of lower-paid staff.

Delivering new homes

The Budget includes further funding for affordable housing, which could be particularly significant when considered alongside the wider devolution package.

The Government has announced:

• an additional £1.5 billion for social and affordable housing in England;
• funding intended to support around 10,000 additional homes;
• priority for Social Rent, including council housing; and
• total investment through the Social and Affordable Homes Programme of more than £40 billion over ten years.

The £1.5 billion will be allocated between 2027/28 and 2030/31, increasing over the period to help councils build delivery capacity.

The preferential Public Works Loan Board rate for councils building new council homes will also be extended for one year, keeping borrowing 40 basis points below the normal rate. From 1 April 2027, a new zero rate of VAT will also apply to land sold to registered social housing providers.

The Government’s forthcoming 10 Year Plan is expected to contain further measures aimed at increasing councils’ capacity to build homes, reducing barriers to development and making greater use of public land.

For authorities, the question will be how these housing measures interact with the new fiscal devolution settlement. Greater access to locally generated revenue and borrowing could give authorities and strategic authorities more options for linking housing investment with transport, regeneration and economic growth.

Capsticks' view: could this Budget be a game changer?

• It combines tax assignment, tax retention and a proposed new local levy in one programme rather than relying on piecemeal devolution deals.
• It could create longer-term, more predictable funding linked to local economic outcomes.
• Twenty-five-year growth retention zones and devolved lending could change the financing of major regeneration and infrastructure.
• It reinforces the role of mayors and Strategic Authorities as economic institutions, not merely grant administrators.
• It sits within a wider agenda to extend devolution coverage (ten new agreements, aiming at full coverage of England by the end of 2028) and transfer responsibilities from departments.

However, there are reasons for caution:

• Grant substitution: the Budget explicitly replaces existing funding streams; headline retained revenue is not a net gain.
• Limited tax autonomy: income tax assignment is not income tax rate-setting, and business rates retention is not complete control of business rates policy.
• Equalisation: growth-linked revenues could widen disparities without protection for lower-tax-base areas.
• Delivery uncertainty: the 2027 Spending Review will determine baselines alongside transferred responsibilities; legislation (including the Overnight Visitor Levy Bill) and detailed schemes remain outstanding, the business rates Call for Evidence is still to come, and the Rewiring the State Delivery Plan is due before the end of the year.
• Governance: constituent billing authorities, mayors and strategic authorities may have different priorities and financial exposures.

Conclusion

The Budget is a potentially historic step towards a more fiscally empowered English local state. It is a game changer in direction and ambition, particularly for mayoral areas with strong growth pipelines. Whether it becomes a game changer in practice depends on the 2027 settlement – net resources, genuine discretion, fair equalisation and workable governance. The decisive test is whether places gain meaningful freedom to make different choices, and not only responsibility for managing a different mix of centrally designed revenues.

How Capsticks can help

Our specialist Local Government team has extensive experience in supporting local authorities, Combined Authorities and Combined County Authorities to deliver change through devolution, advising on governance, functions, powers and voting arrangements, including drafting and reviewing constitutions and schemes of delegation, funding arrangements and models, grant agreements and subsidy control.

If you have any queries around the discussion in this insight, and the impact of the Autumn Budget on your organisation, please speak to our Head of Local Government Tiffany Cloynes or Legal Director Rebecca Gilbert to find out more about how Capsticks can help.