The two mayors of north-east England are publicly at odds over how to use the share of income tax revenue that Prime Minister Andy Burnham has promised to hand to English mayors, in a split that exposes the central unresolved question in the government's flagship devolution policy.
Labour's Kim McGuinness, Mayor of the North East, is expected to direct the money towards economic development and public transport. Lord Ben Houchen, the Conservative Tees Valley Mayor and the only remaining Tory metro mayor, wants to use it to fund tax rebates for local residents. The disagreement was set out in a BBC News video published on Thursday afternoon.
At issue is whether a mayor's revenue share amounts to a spending pot or a genuine fiscal power. Under plans confirmed by the government on 31 July, mayors of strategic authorities will receive a share of income tax receipts generated in their areas for the first time, in what ministers have described as the biggest transfer of power from Westminster in a generation. Income tax rates themselves will not change: the reform assigns revenue rather than devolving the power to set rates, which is the crux of Houchen's objection.
From next spring, mayors begin retaining a greater share of locally generated revenue, starting with business rates. The exact proportion of income tax to be assigned has not been decided, with further detail due in a fiscal devolution roadmap and a devolution White Paper to be published alongside Chancellor John Healey's first Budget in the autumn.
McGuinness, whose authority covers around two million people across Northumberland, Tyne and Wear and County Durham, welcomed the announcement last month.
"This is what taking back control really looks like and what we've been fighting for, for the people of the North East. The days of asking Whitehall's permission are over."
She has pointed to cheaper Mayor's Fares, childcare grants, expansion of the Metro and rail network, and more council homes and youth clubs as priorities for the additional revenue. Her existing fares scheme, capped at £1 for young people and £2.50 for adults until March 2027, has covered 100 million cheaper journeys, and she has committed £28.6m to a regional child poverty action plan.
Houchen, mayor since 2017 for Middlesbrough, Stockton-on-Tees, Redcar and Cleveland, Hartlepool and Darlington, has argued that a slice of local income tax and business rates should instead fund "a new rebate scheme to put money back into people's pockets".
"Every mayor is backing fiscal devolution because they want more money to spend in their area," he said, adding that "devolving a pot of cash and then keeping every real decision in Westminster isn't real devolution". He has cited record levels of youth unemployment and business closures in his area, and said the dispute reflects a wider divide: "That's the difference between us and Labour: we trust people with their own money."
The government has ruled the rebate approach out. Louise Haigh, First Secretary of State, told Times Radio on 31 July that "it's not in their gift to set income tax or business rates", and that rebate schemes would require HMRC to establish full administrative arrangements, which was "just not possible at the moment". Burnham told the Northern Agenda newsletter that those seeking to convert the scheme into a rebate were "misunderstanding the purpose", saying: "Under our plans, more of the taxes raised in a community will stay in that community."
The Institute for Fiscal Studies has estimated that assigning 6% to 9% of local income tax revenues would fully replace existing integrated settlements for economy-related functions in established mayoral authorities in the North and Midlands. Ministers say an equalisation system will be retained so areas collecting less tax continue to receive support.
The two mayors have previously emphasised cooperation, with Houchen telling BBC Politics North: "We're not rivals actually, we work quite closely." They split earlier over a proposed tourist levy, which Houchen declined to implement.