Rachel Reeves has asked officials to develop a roadmap for future fiscal devolution which would give mayors control of a share of some national taxes.
Delivering the 2026 Mais lecture at Bayes Business School on Tuesday, the chancellor promised an "active and strategic state" and said she has identified three areas which will have “the greatest growth and opportunities for the UK in the decade to come”: investing in regions, AI and closer ties with Europe.
As part of the plan to invest in regions across the UK, Reeves announced that civil servants will work with mayors and businesses to develop a roadmap to be published at this year’s Budget.
She said the roadmap will “set out plans to give regional leaders control of a share of some national taxes which have, for too long, been allocated by central government”.
“They will look at income tax, alongside other taxes, with reforms initially targeted at those places that have the greatest capacity to deliver them, and the greatest potential to benefit,” Reeves said.
Reeves also announced the launch of a new £2.3bn City Investment Fund to be deployed by mayors in the largest city regions, as part of her plan to “give Britain’s regions the chance to push ahead and shape their own destinies”.
She said these reforms will “liberate our regions from stifling Whitehall orthodoxies” and “represent a permanent transfer of power and resources – not another exercise in local ambition frustrated by central government control”.
On artificial intelligence, Reeves said she wants Britain to achieve the fastest rate of AI adoption of any country in the G7. She also announced the creation of an AI Economics Institute, drawing on world-leading expertise to closely monitor the impact of AI on productivity and labour markets.
Reeves said the institute, which follows the creation of the AI Security Institute in 2023, “will support us, as our economy changes, to act swiftly and appropriately to make sure that working people are made better off, not losing out, from this transition”.
On closer ties with the EU, Reeves said “no partnership is more important than that between the UK and our European neighbours” and “where it is in our national interest to align with EU regulation, we should be prepared to do so – including in further areas of the single market”.
She said the principles the government will use to judge what is in the national interest will be:
- That a decision to align should mean higher growth and investment, more jobs and consumer benefits for the long term
- That the future direction of policy should be sufficiently stable and compatible in terms of values and objectives
- That the UK’s economic and national security and resilience should be preserved or enhanced.
Reeves added: “There are areas in which regulatory autonomy may be necessary – for sectors with unique characteristics or strategic importance for the UK. But that should be the exception, not the norm."
Concluding her speech, Reeves said: “Two years ago, in this lecture hall, I said that despite the challenges, I was an optimist about our ability to rise to them.
“And despite further challenges that have come our way, I remain an optimist. An optimist about the capacity of an active and strategic state to drive investment and to drive growth. An optimist about the dynamism and enterprise of British business. An optimist about the talent, commitment and ingenuity of working people in every part of our United Kingdom.
“Our mission – to unlock that talent, that commitment, that ingenuity, to pair economic success with security and social justice. No one ever said it would be easy. Nothing worthwhile ever is. And while I have heard plenty of criticisms of this government’s policies, what I have yet to hear is a credible or compelling alternative plan.
“Our method – the active and strategic state, to build an investment-led growth model for Britain. And our plan – stability, investment, and reform: to make Britain the place where the industries of the future are created; where the technologies of the future are developed; and where the jobs of the future are secured – all built on the foundation of economic security.
“That is our mission, our plan, and our method: from investment, growth. From growth, national renewal.”