Budget 2026: Chancellor promises Sadiq Khan 'radical devolution of power' to fire up London

Devolution of power means transferring decisions, responsibilities and funding from central Government to elected leaders in regions and cities. The aim is to let people who understand local needs decide how money is used. In the article, John Healey promised a “radical devolution of power” to boost Britain’s economy and reduce its over-centralised system.

For London, this could give the Mayor greater influence over income tax and business rates raised in the capital. It could also support decisions about transport, airports, technology investment and other infrastructure. Other English regions were also due to receive major new powers through a fiscal devolution package involving Mr Healey and Andy Burnham.

The proposal was still being considered before the Budget. Its significance would depend on how much money and authority local leaders actually received. Business groups wanted a settlement reflecting London’s contribution, while ministers also faced pressure to support regions fairly and avoid setting London against the rest of Britain.

The proposed transfer covered both political authority and financial resources. John Healey said local leaders would receive more power, while he and Andy Burnham were preparing a fiscal devolution package for regions across England. The wider goal was to reform Britain’s highly centralised economic system.

For London, the most significant request was to devolve a proportion of income tax and business rates revenue. The London Chamber of Commerce and Industry said the share should fairly reflect the tax receipts generated by the capital. Other possible measures included a Business Rate Retention Zone and support for transport, airports and an AI Investment Zone.

The article does not specify the final amounts or exact powers transferred. The proposals were due to feature in the Budget announcements. They could give regional leaders more control over investment, but the Government also had to manage poor public finances and concerns about fairness between London and other regions.

London’s economic weight is much larger than its population share. The Centre for London said the capital generates around 22% of UK GDP despite having 15% of the population. This makes London a crucial part of Britain’s economy, but it also highlights the contrast between the wealth produced in the capital and the limited local control over public money.

The article says the Mayor retains just 6% of taxes raised in London. The Centre for London compared this with around 50% in New York. That comparison was used to support calls for significant fiscal devolution and greater control over how money is raised and spent locally.

These figures do not show that London would automatically receive every tax pound it generates. They show the scale of the argument for changing the current system. Supporters wanted future funding to reflect London’s economic importance while still addressing severe deprivation, including child poverty rates approaching 50% in some boroughs.

A Business Rate Retention Zone is an area where local government keeps some or all of the additional business-rate revenue generated when the local economy grows. Business rates are paid by many non-domestic properties. Retaining the growth gives local leaders a possible funding stream for investment instead of sending all additional revenue into wider national arrangements.

The article says the Chancellor may approve such a zone for London. The potential purpose was to fund a £20 million scheme that would enable international trains to stop at Stratford International Station in east London. The retained revenue would therefore connect business activity with a specific transport improvement.

Approval was only described as a possibility, not a completed decision. The article does not state the zone’s boundaries, the retention percentage or the expected revenue. If approved, it could show how fiscal devolution might support infrastructure while giving London stronger incentives and tools to encourage economic growth.

Business groups believe London’s economic contribution deserves greater local financial control. The capital produces around 22% of UK GDP with 15% of the population, yet its Mayor retains only 6% of taxes raised there. The London Chamber of Commerce and Industry therefore called for a share of income tax and business rates to be devolved.

Their key condition was that the share should fairly reflect the tax receipts London generates. The aim was not simply to reduce taxation, but to give City Hall reliable resources for investment. The Chamber linked this funding to infrastructure, public services and London’s ability to compete internationally.

The Centre for London also supported significant fiscal devolution, while warning against pitting the capital against other regions. The proposal was being considered alongside other measures, including a retention zone and an AI Investment Zone. The final Budget would determine whether these requests became policy and how much control London actually gained.

Greater control over locally raised money would give London’s leaders more freedom to set investment priorities. The London Chamber said the capital needed resources for infrastructure and services that support global competitiveness. This matters because London generates a large share of national economic output but currently has limited control over its tax base.

Possible investments named in the article include the Bakerloo line extension, the West London Orbital and a DLR extension to Thamesmead. Other proposals included airport expansion, international trains stopping at Stratford, and an AI Investment Zone around King’s Cross and the Elizabeth Line tech corridor. These projects could improve connections and attract private investment.

The article presents these as proposals, not guaranteed outcomes. Greater control could help London respond faster to local needs, but the settlement would need to balance the capital’s importance with other regions’ claims. The Centre for London specifically warned against treating London as a political football.

Income tax is a tax on people’s earnings and is normally administered nationally by HM Revenue and Customs on behalf of central Government. Business rates are charged on many non-domestic properties and collected through local authorities, but the wider system is governed by national rules, with revenue redistributed through central arrangements. Local collection therefore does not equal full local control.

This division matters because London can generate substantial tax receipts without its Mayor deciding how much of that money stays in the capital. The article says the Mayor retains only 6% of taxes raised in London. Business groups wanted a proportion of income tax and business rates returned with a fair link to the revenue generated.

Britain is described as highly centralised because national Government controls most taxation and spending decisions. Greater devolution would let local leaders direct more resources toward local transport, services and economic priorities. The article does not state the final design or amounts of any transfer.