Devolved power: Catalyst for growth or divergence

WHAT CHANGED

Published on 31 July 2026, “Rewiring the State” sets out the UK Government’s intention to fundamentally reshape the relationship between Whitehall and local government, shifting greater power, funding and accountability to mayors, strategic authorities and local leaders. 

WHAT THIS MEANS

The direction of travel towards greater fiscal devolution was established well ahead of the October Budget. Published on 31 July 2026, Rewiring the State set out the government’s ambition to shift power, funding and accountability from Whitehall to local leaders, underpinned by a principle of “devolving by default”. Strategic Authorities are expected to cover the whole of England by the end of 2028, while the announcements accompanying the Budget mean that more than 90% of England’s population will now be covered by devolution arrangements. Regional institutions will assume greater responsibility across areas including transport, housing, skills, employment support and innovation. The rationale is that local leaders are better placed to understand the opportunities and constraints within their economies and coordinate investment around local priorities. 

Bringing businesses, universities, colleges, communities and local government together could help align investment around sector strengths while addressing the constraints that deter employers. Locally tailored skills provision can better connect labour supply with industry needs, particularly when coordinated with investment in infrastructure, development sites and business support. A credible talent pipeline can be as important to business as direct financial incentives. Housing affordability and transport connectivity also matter, ensuring workers can access employment opportunities and that the benefits of growth are spread more widely. 

Plymouth provides an early example of this more place-based approach. Team Plymouth, the city’s public-private partnership, will receive £3 million, subject to a further business case, to help people not in education, employment or training access opportunities within the city’s growing defence sector while addressing skills shortages faced by employers. More broadly, the Budget committed £100 million over two years to expand local apprenticeship services so that all current mayors can provide locally tailored support. The commercial opportunity is to translate investment in priority sectors into the skills, infrastructure and property needed to attract and retain businesses. 

The stated redistribution of decision-making will now run alongside a physical redistribution of government itself. Through Places for Growth, the government is targeting 50% of UK-based Senior Civil Servants to be located outside London by 2030 and is concentrating its regional presence around 13 cross-government locations. More than 23,000 roles had already been relocated, with the next phase increasingly focused on the seniority, functions and geographic concentration of those roles. 

Importantly, the October Budget provided greater clarity on the financial architecture intended to support the devolution agenda. It confirmed £285 million of transitional funding in 2027-28 to support the rollout of Good Growth Funds, comprising £165 million for places with a mayor in place in 2027 and £120 million of incubator capital for areas transitioning towards a devolution agreement or Strategic Authority status. A further £150 million will support the capacity and capability of Strategic Authorities, while a bespoke £1.5 billion borrowing facility for Mayoral Strategic Authorities is due to become operational by April 2028. 

A more immediate development opportunity could come through the Strategic Sites Accelerator. The National Wealth Fund and Office for Investment will jointly deploy an offer intended to mobilise around £700 million to support the development of strategic investment sites and reindustrialisation. This could help overcome viability or infrastructure constraints that prevent otherwise strategically important commercial sites from progressing. Combined with stronger strategic planning and mechanisms such as Mayoral Development Corporations, there is greater potential to coordinate land, infrastructure, skills and employment provision at a regional level. For developers and investors, early engagement with mayoral authorities will therefore become increasingly important. 

Perhaps a more significant announcement from the budget was the Fiscal Devolution Roadmap, which represents a structural change in how regional government is funded. From April 2027, Mayoral Strategic Authorities will enter the Business Rates Retention system, including a 20% share of locally retained business rates, while the government intends for local and regional government collectively to retain 100% of business-rate income by the end of the decade. From 2028, mayors will also receive an assigned share of income-tax revenues, initially linked to basic-rate income tax and based on where taxpayers live, although tax rates and thresholds will remain nationally determined.

This matters because it creates a stronger connection between economic performance and regional resources. If regions are able to retain a meaningful share of the additional revenues generated by growth, local leaders should have a greater financial stake in attracting employment, unlocking development and investing in infrastructure. In principle, that creates the potential for a virtuous circle in which growth strengthens revenues, revenues support investment, and investment enables further growth. However, the strength of that mechanism will depend on the eventual funding baselines, redistribution arrangements and the extent to which additional locally generated revenues are genuinely retained. 

The earliest gains are unlikely to be distributed evenly. Places with established institutions, delivery capacity and a pipeline of investable projects should be better positioned to use the new framework quickly. The Budget highlights examples already emerging across the country, including Team Derby and the Business Rates Retention Zone at Infinity Park in the East Midlands, as well as the West Innovation Arc and a further £10 million to help unlock private investment at Bristol Temple Quarter in the West of England. The important distinction is that institutional maturity, development readiness, revenue potential and sector growth are not necessarily concentrated in the same places. These advantages should therefore not be interpreted as a simple ranking of regional winners. 

There are also important caveats regarding budget announcements. Near-term funding remains relatively modest compared with the overall scale of the government's ambition, while some of the most significant fiscal reforms will not take effect until 2027 and 2028. Implementation will therefore matter as much as the policy framework. Investment will need to be sufficiently concentrated to make a measurable difference rather than being spread too thinly across competing priorities, while some places will need to strengthen their institutional and investment capacity. The financial position of individual local authorities could create an additional constraint. 

There is also a risk that devolution widens regional disparities. Stronger economies typically have larger tax bases and are better positioned to generate and reinvest additional revenue, so without effective fiscal equalisation, greater autonomy could reinforce existing gaps. 

For commercial property markets, any positive realisation could nonetheless be significant. Greater retention of business rates strengthens the relationship between local economic growth and regional revenues, giving local leaders a clearer financial incentive to attract businesses, facilitate development and invest in enabling infrastructure. This comes at a time when occupier demand in many regional markets is increasingly focused on high-quality space, while new supply remains constrained and development viability is challenging. If greater fiscal certainty and better coordination of infrastructure and investment can help unlock viable schemes and strengthen business confidence, devolution could become an important part of the next cycle of regional development.  

BOTTOM LINE 

For real estate, this agenda points towards greater differentiation between UK cities. Places able to align devolved funding, infrastructure, planning, government investment and private capital will be better positioned to strengthen their economic proposition. Others may find it harder to translate additional powers into growth. Devolution could therefore do more than redistribute power away from Westminster. It could increasingly influence where growth occurs and, ultimately, where real estate opportunity is created.