Why Cambridgeshire and Peterborough should lead fiscal devolution
In just under six weeks, the Government is expected to publish its white paper on fiscal devolution, marking a decisive break with England’s highly centralised system. Rather than relying mainly on grants allocated in Whitehall, mayoral strategic authorities would retain a share of locally generated income tax and more business-rate revenue. Business-rate reform is expected first, with income-tax sharing to follow. The principle is simple: places that grow their economies should keep some of the resulting revenue and gain greater freedom to invest it.
This could represent a major opportunity for Cambridgeshire and Peterborough. The sub-region already has an internationally significant knowledge economy with fast-growing cities. Yet growth is constrained by housing costs, transport gaps, water scarcity, grid capacity, skills shortages and uneven access to opportunity. A share of the tax base could provide a more reliable way to tackle those constraints than repeated bids for short-term funding.
A strong starting point
The region’s tax-and-spend profile makes the case especially interesting. In 2025, Greater Manchester Combined Authority and the Office for National Statistics created a dataset for the financial year of 2021-22. This identified £11.8 billion of tax revenue attributable to Cambridgeshire and Peterborough, against public spending of roughly £11.3 billion. That equates to a surplus of about £0.4 billion after rounding, or approximately £479 per resident. On that measure, it was one of only three English strategic-authority areas where attributed revenues exceeded expenditure.
Source: GMCA/ONS (2021/22) – Espresso dataset
This should not be mistaken for proof that the combined authority could immediately fund every public service from taxes it controls. The figures allocate national taxes and spending geographically; they do not describe the authority’s own budget. They also capture an exceptional year shaped by pandemic spending and use methods that inevitably involve judgement. But the result is still significant. It indicates a broad and productive tax base and suggests that Cambridgeshire and Peterborough may be better placed than most regions to test whether fiscal devolution can support a progressively more self-financing model.
The contrast with Greater Manchester is instructive. Its devolution settlement has supported faster growth, but its estimated fiscal gap widened sharply between 2012/13 and 2021/22 as spending rose faster than tax receipts. That is not a verdict on devolution: mayors still control only a small proportion of the levers that shape productivity, health and worklessness. It is, however, a warning that devolving revenue without the power to change economic outcomes - or without protection against national shocks - can simply transfer fiscal risk from the Treasury to places.
A potential blueprint for change
The Centre for Cities has proposed a practical route from grant funding to tax sharing. Its model would initially replace existing mayoral settlements with shares averaging about 7 per cent of local income-tax receipts and 2 per cent of corporation-tax receipts, with around 90 per cent of funding coming from income tax. It would also devolve the central government share of business rates outside London and allow authorities to retain growth across future resets.
The design tries to balance incentive and insurance. Income tax would be redistributed through a Swiss-style system so that places with smaller tax bases are protected by a floor. Growth in corporation-tax revenue would be retained locally, giving mayors a direct reward for improving business productivity and attracting investment. Existing funding would be guaranteed to 2029/30, limiting the immediate risk of losses.
That approach suits Cambridgeshire and Peterborough. Its concentration of research-intensive and high-productivity businesses means that a carefully assigned share of corporation tax could be valuable. Income-tax sharing would connect investment in skills, employment and higher wages to the authority’s future resources. Retained business-rate growth could support town-centre regeneration and commercial development across Peterborough, the market towns and the wider county—not only the Cambridge cluster.
From a paper surplus to shared prosperity
The reward is a virtuous circle: invest in transport, affordable housing, water infrastructure and skills; unlock sustainable growth; retain part of the additional revenue; and reinvest it across the region. Predictable revenues could also strengthen the case for prudent borrowing against future growth, allowing infrastructure to be delivered when it is needed rather than after constraints have become acute.
But a strong regional balance sheet creates risks as well as opportunities. Tax receipts are volatile, corporation tax especially so, and Cambridge’s prosperity can obscure lower incomes and weaker outcomes elsewhere in the region. Fiscal devolution must therefore include transparent annual tax-and-spend accounts, multi-year transitional protection and a durable national equalisation system. Within the combined authority, investment criteria should ensure that communities in Peterborough, Fenland and other places share in the proceeds of growth. Central government must continue to fund national redistribution and provide cover for recessions and other shocks that local leaders cannot control.
Cambridgeshire and Peterborough should therefore be included from the outset, rather than waiting behind longer-established mayoral areas. Its tax base makes it a credible candidate for a fiscal-devolution pilot; its infrastructure pressures make the need urgent; and its internal economic contrasts make it a demanding test of whether retained growth can be shared. The goal should not be independence from the national state, but a region with the power and incentive to finance more of its own future while remaining part of a fair national settlement.
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