England's combined authority mayors have divided over how to use a share of income tax revenue that the UK government is handing to regional leaders for the first time. The Conservative mayor of Tees Valley, Lord Houchen, wants to return the money to residents as tax rebates. The Labour mayor of the North East, Kim McGuinness, wants to spend it on local services.

The government announced on 30 July 2026 that mayors of city regions will receive a portion of income tax revenues, alongside greater control of services such as housing. The devolution package was described as the largest set of financial powers ever offered to English mayors. From next spring, mayors will begin keeping a greater share of locally generated revenues, starting with business rates (the tax paid by businesses on their premises), with income tax retention to follow (GOV.UK; MHCLG blog, 31 July 2026; East Midlands Combined County Authority, 30 July 2026).

Lord Houchen said he would prefer the government to cut taxes outright rather than hand a portion of income tax to regional mayors. He criticised the devolution plan, arguing that it means getting people's taxes to spend but not being allowed to give the money back to them. Lord Houchen wants to use any devolved income tax revenue to give residents tax rebates (BBC News, 30 July 2026; Yahoo News UK, 31 July 2026; BBC Tees, 5 August 2026).

Kim McGuinness wants to spend devolved income tax revenue on local services. The two mayors' disagreement was reported by BBC Tees on 5 August 2026, framed as a test of how devolved fiscal powers should be used by leaders of different parties in neighbouring regions (BBC Tees, 5 August 2026; BBC News video).

Lord Houchen has also ruled out introducing a tourist tax (a levy on visitors staying in hotels or short-term lets, similar to schemes already operating in parts of Scotland) in Teesside, Darlington and Hartlepool for as long as he is mayor. He stated this position in November 2025 and has not publicly revised it (BBC News, 27 November 2025).

The broader fiscal backdrop for both mayors is substantial. In July 2025, the BBC reported that almost £2.8 billion was made available for North East and Tees Valley mayors to spend on local projects, including £1 billion for Tees Valley (BBC News, 5 July 2025). The call for London-style powers for northern mayors is not new; a newly elected Labour MP said in July 2024 that mayors in the North East and Tees Valley should be given powers comparable to those held by the Mayor of London (BBC News, 15 July 2024).

The government's announcement drew a warmer reception elsewhere. Steve Rotheram, the Labour mayor of Liverpool City Region, welcomed the handing of a share of income tax to mayors, as did leaders in Surrey, a non-metropolitan authority exploring strategic authority status (a new tier of regional governance in England that brings together multiple councils). Surrey leaders welcomed plans under which mayors would retain a share of income tax and business rates revenue (Liverpool City Region Combined Authority, 30 July 2026; Surrey Local Government Reform Hub, 5 August 2026).

The split between Houchen and McGuinness exposes a fault line that the government's devolution design may not have fully anticipated. By handing mayors income tax revenue without an explicit mechanism for returning it to residents as rebates, the model assumes that mayors will act as spending authorities rather than tax-cutting ones. Houchen's objection is not to devolution itself but to the constraints attached: the revenue flows through the mayor's budget but cannot be redirected back to taxpayers. McGuinness's approach aligns with the government's presumed intention, treating the new revenue as a tool for service improvement.

The tension matters beyond the North East and Tees Valley. If a Conservative mayor in a heavily Leave-voting region can make a politically credible case that devolved income tax is a spending trap rather than a fiscal liberation, other mayors in similarly disposed areas may face pressure to adopt the same stance. Equally, Labour mayors who embrace the spending model give their opponents a line of attack: that devolution enables higher local taxation without a corresponding right of return. The government has framed the package as empowering local leaders to make lives better. Whether voters agree may depend on which mayor they happen to have.