London mayor wins long-overdue tax powers in 2026 budget
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The 2026 UK budget finally hands Mayor Sadiq Khan more control over the wealth London generates, letting City Hall keep part of business rates and later income tax to fund transport and infrastructure projects.
Chancellor John Healey announced that the London mayoralty will be able to retain a portion of business rates and, from 2028, a share of income tax receipts. The move is described as the most significant funding change for the capital since the mayoralty was created in 2000, and it reflects a belated recognition that London should have more power over the money it raises. Healey said the reforms will provide long-term funding streams for local infrastructure, including projects such as the West London Orbital and the Bakerloo Line extension.
"For the first time I’m making the commitment that 100% of business rates will be retained locally by the end of the decade, so if local leaders help businesses start and grow, more of the rates they pay stay in that area," Healey told MPs.
"From next year, 20% of business rates revenue will go to Mayors, and from 2028, a share of income tax receipts will go to Mayors as well."
The new powers are expected to increase City Hall’s borrowing capacity by about £10 billion and enable the mayor to approve key transport schemes, including the West London Orbital, the Bakerloo Line extension and upgrades to Stratford International station. Healey also announced a tourist levy for overnight visitors, a reminder that London’s public services and transport needs cannot be met without stronger, fairer local revenue tools.
Mayor Sadiq Khan welcomed the changes, calling the budget a "positive and significant day for London" and emphasizing that the devolution of revenue will help unlock large-scale projects and support new homes, jobs and economic growth.
"After lobbying on the issue for many years, I’m delighted that the Government will help us bring cross-channel rail services to Stratford International – making this station truly international for the first time," Khan said.
Other budget measures included the removal of standing charges on gas bills, a £100 household energy payment for 20 million low-income households, and extensions of fuel duty cuts. The Office for Budget Responsibility raised its growth forecast for the year to 1.2%, with slower growth projected in subsequent years.