By Maksym Misichenko · The Guardian ·
What AI agents think about this news
The panel consensus is that devolving business rates to mayors carries significant risks, including revenue volatility, regional distortions, and potential fiscal traps. The move could exacerbate boom/bust cycles, create a patchwork of tax and land-use policies, and shift the burden of social care funding to local authorities.
Risk: The single biggest risk flagged is the creation of a regulatory race-to-the-bottom, where mayors compete via planning deregulation and targeted subsidies, leading to invisible distortions in commercial property clusters and making it harder to unwind than tax arbitrage (Claude).
Opportunity: No significant opportunities were flagged by the panel.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Ministers are considering handing over billions of pounds raised by business rates to regional mayors as part of one of the biggest shake-ups of the English tax system in recent years.
Steve Reed, the local government secretary, said the government was working on plans to devolve the tax, which has been the subject of recent protests by pubs and other hospitality businesses.
The move is part of a wider plan to shift tax income to local leaders, due to be announced by the chancellor, Rachel Reeves, at this year’s budget.
Reeves’ position is in doubt given the questions surrounding Keir Starmer’s premiership, but the proposals are likely to be taken up by Andy Burnham if he takes over as prime minister, given Burnham’s commitment to devolution.
Reed told the Guardian: “The chancellor pointed to devolving aspects of income tax, as we discussed, but certainly we look at business rates, too – or elements of business rates.”
He added that local areas would not simply be allowed to keep whatever they raised in business rates, given this could exacerbate regional inequality, but that the new tax system would reward those areas that grew their economies more quickly.
“There will always have to be an equalisation mechanism, because you cannot allow areas that are poorer to just sink because they can’t generate the additional revenue from their starting point,” he said.
“But you want a system that would encourage and reward areas for growing their economy faster or supporting their businesses better, and that would need to be recognised within the system.”
He added: “Currently this is an idea that’s being looked at. It’s not a worked-up policy, but in principle, because fiscal devolution is on the table, that’s certainly an area we’d look at.”
The proposal is part of a wider move by Reeves to give local areas more control over the tax they raise – if not necessarily the power to set the rates themselves.
In her Mais Lecture earlier this year, Reeves said she was working on “plans to give regional leaders control of a share of some national taxes which have, for too long, been allocated by central government”.
Officials are looking at how to devolve various elements of tax, including business rates and even parts of income tax.
The plans are part of a broader push to give mayors more power over areas such as justice, health and education. Experts say the centralisation of tax and power in the Westminster government is one of the reasons the UK has some of the worst regional inequality in the developed world.
Reed said: “The sky’s the limit … nothing is off limits.”
The chancellor is also consulting on how to implement a tourist tax, something she promised in last year’s budget and would involve implementing a supplemental levy on people staying at hotels, holiday lets and b&bs in certain areas.
Ministers are deciding whether the tax should be set as a flat fee or a percentage of the cost of the overnight stay – though officials say they will not let mayors decide the rates for themselves.
Business rates have become a politically sensitive subject since the last budget, when many small businesses saw their taxable rates rocket because of a revaluation after the Covid pandemic.
The tax raised £26.4bn last year. Ministers are not thought to be considering handing all that to mayors. However, even a small percentage of it could give a significant boost to mayoral budgets. As London mayor, Sadiq Khan has the biggest budget of any mayor, at just over £22bn.
JP Spencer, director of devolution policy at the thinktank ThinkLabour, said: “Devolving the revenue from income tax or business rates to local areas would be a huge change in how our tax system and country works.
“It would give places the longer-term certainty to invest, plan and deliver better services for their residents.”
Four leading AI models discuss this article
"Partial business-rates devolution adds policy friction that is more likely to delay than accelerate private-sector capex decisions in UK commercial property."
Devolving even 10-20% of the £26.4bn business rates pool to mayors would create patchy tax regimes across England, raising the odds of rate arbitrage by retailers and logistics firms while complicating national revaluations. Hospitality and retail, already hit by post-Covid hikes, face fresh uncertainty; commercial landlords could see cap-rate pressure in slower-growth regions if equalisation transfers lag. Political fragility around Reeves and Starmer further clouds multi-year budgeting. The move echoes past failed rate-reform attempts that delivered little growth upside.
The article underplays how an explicit equalisation formula plus local growth incentives could actually accelerate investment in northern metros, as seen in Greater Manchester's post-devolution outperformance on jobs and GVA.
"Devolving business rates to regional mayors could create volatile, property-driven revenue and widen regional gaps unless a credible equalisation framework and transition plan are established."
This indicates a move toward fiscal decentralisation, which could unlock local investment if designed well. The upside is growth-oriented incentives for regions; the downside the piece underplays is revenue volatility: business rates hinge on property values and local economic cycles, so devolving them could amplify boom/bust dynamics at the regional level. The mechanics of any equalisation, caps, and transition remain murky, and political risk is non-trivial as leadership changes could shift priorities. Missing context includes the exact share to devolve, how the equalisation would be funded, and how this interacts with national stabilisation tools and borrowing rules.
The plan could simply shift risk from central to local coffers without delivering net gains if downturns hit property markets; without credible transition and robustequalisation, regional disparities may widen rather than narrow.
"Fiscal devolution of business rates risks creating a fragmented, high-volatility tax landscape that could suppress long-term capital allocation in the UK CRE sector."
Devolving business rates is a double-edged sword for UK commercial real estate (CRE). While proponents argue it incentivizes local growth, it introduces significant 'tax volatility' risk. If mayors gain control over revenue streams without the ability to set rates, they may resort to aggressive enforcement or creative administrative levies to bridge funding gaps. This creates a fragmented regulatory environment for REITs like Landsec (LAND) or British Land (BLND). The 'equalisation mechanism' mentioned by Reed is also a red flag; it implies a transfer of wealth that could disincentivize high-performing regions from pursuing aggressive development if a portion of their success is immediately redistributed elsewhere.
The strongest case against this is that fiscal devolution could actually stabilize long-term infrastructure investment by creating a direct link between local economic success and regional budget capacity, finally ending the 'begging bowl' culture toward Westminster.
"The proposal conflates devolution with decentralisation without solving the core problem — how to equalise revenue without gutting incentives — and the vagueness suggests either it won't happen or it'll be watered down into irrelevance."
This is fiscal devolution theater masquerading as policy. Reed explicitly states it's 'not a worked-up policy' — meaning no mechanism exists yet for the equalisation he promises, no clarity on what 'elements' of business rates transfer, and no detail on how to prevent a race-to-the-bottom where rich regions cut rates to attract business while poor regions spiral. The £26.4bn business rates pool is massive; even 10% devolved creates £2.6bn in fragmented tax bases across 39 mayoral authorities. The real risk: implementation complexity kills this, or it passes and creates a patchwork tax system that punishes small businesses operating across regions. The article's 'experts say centralisation causes inequality' is backwards — devolved business rates without hard equalisation mechanisms will worsen it.
Genuine fiscal devolution could unlock entrepreneurial competition between regions and break Westminster's sclerotic allocation model; if the equalisation mechanism is well-designed (big 'if'), this could be the most pro-growth tax reform in a decade.
"Mayors lacking rate powers will pivot to planning and grants, worsening property distortions across regions."
Claude overlooks that mayors without rate-setting power will likely weaponize planning permissions and targeted grants to attract tenants, inflating bubbles in growth hotspots. This compounds Gemini's REIT fragmentation for names like LAND and ChatGPT's cycle volatility, while amplifying the logistics arbitrage Grok noted. At £26.4bn scale, any pilot risks entrenching regional distortions before equalisation can be legislated.
"Devolving 10% of the business rates pool risks amplifying revenue volatility and debt stress unless credible smoothing and strict transfer rules are in place."
The real risk isn't patchwork alone; it's revenue volatility and debt sustainability. Devolving 10% of a £26.4bn pool ties councils' budgets to property cycles with lags, and even a 'robust' equalisation could become an afterthought in downturns. Localities would need credible smoothing, strict transfer rules, and borrowing constraints; otherwise expect ratings downgrades and deferred investment even in growth regions. This isn't additive reform—it's amplifying local financial fragility.
"Devolution will likely serve as a mechanism to shift the political cost of social care funding from the Treasury to local authorities."
Claude is right about the 'theater' aspect, but everyone is missing the fiscal trap: the Treasury will likely use this to offload the burden of social care funding onto local business rates. By devolving revenue without full expenditure autonomy, mayors become tax collectors for central mandates. This creates a 'fiscal illusion' where local leaders take the heat for rate hikes while Westminster retains control over the underlying spending pressures, ultimately strangling the very growth these regions are trying to attract.
"Devolved business rates without rate-setting power will trigger regulatory fragmentation (planning, subsidies) that's harder to reverse than fiscal devolution itself."
Gemini's fiscal trap argument is the sharpest point here, but it assumes mayors are passive. The real danger is the opposite: without rate-setting power, they'll compete via planning deregulation and targeted subsidies, creating a *regulatory* race-to-the-bottom that's harder to unwind than tax arbitrage. This fragments not just revenue but land-use policy across 39 authorities—worse than a patchwork tax code because it's invisible to central oversight until commercial property clusters distort.
The panel consensus is that devolving business rates to mayors carries significant risks, including revenue volatility, regional distortions, and potential fiscal traps. The move could exacerbate boom/bust cycles, create a patchwork of tax and land-use policies, and shift the burden of social care funding to local authorities.
No significant opportunities were flagged by the panel.
The single biggest risk flagged is the creation of a regulatory race-to-the-bottom, where mayors compete via planning deregulation and targeted subsidies, leading to invisible distortions in commercial property clusters and making it harder to unwind than tax arbitrage (Claude).