The Housing, Communities and Local Government Committee said the idea should be considered to reduce the reliance of local authorities on council tax and business rates if the Government genuinely wants to pursue effective devolution.
It also suggests investigating whether a ‘tourist tax’ - already used in Italy, Germany and the Netherlands and being considered for the Isle of Wight - is feasible for certain areas.
Clive Betts, chairman of the Housing, Communities and Local Government Committee and MP for Sheffield South East, said: “Financial devolution is crucial to the future success of devolution.
“The Government should examine the options for fiscal devolution, giving local authorities greater freedom and enabling them to be take longer-term decisions for their communities and be more accountable to their electorates.”
The report, which is published today, also warns that there continues to be “minimal” public engagement in how devolution works in principle - citing the deals in West and South Yorkshire as examples of ordinary people being cut out of the negotiation process.
It said consultation on the Sheffield City Region deal had been criticised as a “box-ticking exercise” after taking place on after the agreement had been struck, while people were left unclear about the reasons for delays to the West Yorkshire deal.
“There should be greater efforts to engage the public before as well as after negotiations, through consultations, citizens assemblies and better publicity,” it said.
It also warns that devolution agreements are currently concentrated in urban areas and needs to be extended to rural places.
It calls on Mr Gove to work with local councils on producing a new devolution framework, with devolution as the “default option” unless there are compelling reasons not to hand over powers on areas like health, housing, planning and education.
Mr Betts said there needs be a “more proactive” approach from Government to devolution.
“Michael Gove, as the new Secretary of State, should the seize the opportunity to vigorously drive forward devolution across England and help boost the provision of public services in cities and regions. Across Whitehall, Government needs to be more positive and proactive in delivering devolution.
“On this path, the Government should work with local government to produce a devolution framework in which devolution is the default option. Devolution also needs to involve local people.
“The local public should be consulted on whether devolution should include having a directly elected mayor.”
'Unacceptable delay' to UK Shared Prosperity Fund
There has been an “unacceptable delay” in bringing forward proposals for how the new UK Shared Prosperity Fund to replace EU development funds will work, the committee has said.
The report calls on the Government to accelerate proposals for how the UK Shared Prosperity Fund will work, criticising the Government’s “unacceptable delay” in bringing forward proposals, given the Government has had over four years to bring forward an alternative to the European Development Funds that will completely end in 2023.
The report said: “The Committee has persistently sought clarity from the Government about how the UK Shared Prosperity Fund will work. The Government has had over four years to design and bring forward a coherent alternative to the European Development Funds that will completely end in 2023. This delay has been unacceptable and requires an accelerated approach.
"The Government should bring forward as soon as possible its proposals for how the UK Shared Prosperity Fund will work, including the funding profile to be controlled by combined authorities or local authorities.
"The majority of the funding should be allocated as block grants with local and combined authorities empowered to allocate the funds within the general principles of bolstering regeneration and tackling unemployment and skill shortages already announced by the Government.
“The Government should confirm that the £1.5 billion, equivalent to that formerly provided by the EU, will be increased to retain its real value over time.
"It should also increase the total amount of funding for the UK Shared Prosperity Fund to ensure that English regions that would have been eligible for greater sums of structural funding had the UK stayed in the EU and if the Government had strictly followed the EU’s former allocation of funds do not lose out by its guarantee to retain the existing amounts of funding for other parts of the UK.”