Budget 2026: Chancellor John Healey urged to hand Sadiq Khan tax powers to boost London as 'greatest capital in world’

John Healey faced growing calls to give Lord Sadiq Khan major new tax powers to fire up London to drive the UK’s economy.

The Chancellor was urged to devolve to the London Mayor a proportion of income tax and business rates revenue that “fairly reflects the tax receipts the capital generates”.

Andy Burnham meets Chancellor John Healey ahead of the Budget at 11 Downing Street

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The Chancellor and Andy Burnham, though, were expected to publish a significant fiscal devolution package to reform Britain’s over-centralised economic system.

Regions across England were expected to be handed major new powers.

Civic experts, though, urged Mr Healey not to treat London as a “political football” and instead to unleash its economic potential by handing new powers to City Hall to enhance its reputation as the ‘greatest capital in the world’.

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In its submission for the Budget, the London Chamber of Commerce and Industry called for a series of actions including:

* Restore VAT-free shopping to make London more internationally competitive for tourists.

* Designate King's Cross and the Elizabeth Line tech corridor as an AI Investment Zone, creating the regulatory conditions to allow London to cement its position as the AI and tech capital of Europe.

* Support airport expansion at Heathrow, Gatwick and Luton, to seek to unlock billions of pounds of private investment and hundreds of thousands of high-skilled jobs across the country.

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It stressed: “The capital generates around 22% of UK GDP despite having 15% of the population, yet some boroughs have child poverty rates approaching 50%.

“Burnham needs to match his description of London as the ‘greatest capital city in the world’, with a fiscal devolution package that reflects its economic importance and aligns with the ambition offered elsewhere in the UK.”

It emphasised that compared with many international cities, London's leaders have remarkably little control over how money is raised and spent locally.

The Mayor retains just 6% of taxes raised in the capital, compared with around 50% in New York, it explained, as it called for significant fiscal devolution.

Meanwhile, the Conservatives are calling on Mr Burnham to give mayors the power to offer tax cuts in their areas.