Healey Allocates £1.5bn in Borrowing Power to Regional Mayors

Chancellor John Healey will unveil a £1.5 billion borrowing facility in next week's budget, marking a significant shift in how local governments in England access capital. This move is designed to reduce the dependency of regional authorities on central government approval for individual projects. The initiative forms the core of a devolution package that Prime Minister Andy Burnham says will end the era of local leaders seeking permission from Westminster for every major initiative. This first major fiscal statement from the new chancellor represents a structural change in the relationship between local and national financial management.

The new borrowing facility will be established over the next two years in collaboration with regional mayors. This provision addresses a long-standing concern among local leaders who argued that limited access to credit markets hindered their ability to invest in local infrastructure. In contrast, local authorities in the United States and several European nations routinely issue their own bonds to finance development. By adopting a similar model, the UK government aims to align its regional financing structures with international best practices, potentially lowering costs and increasing investment speed.

In addition to the borrowing powers, the package includes an initial allocation of £285 million designated as good growth funding for next year. Local leaders will have the autonomy to direct these funds toward their own priorities, which may include housing development, transport links, or high street regeneration. This funding is intended to serve as a bridge until 2028, when a new system is expected to pass a portion of income tax revenue directly to local areas. This revenue-sharing model was first proposed earlier this year by former chancellor Rachel Reeves and is now set to be implemented to provide longer-term fiscal stability for regions.

The budget will also detail the mechanics of the revenue-sharing model, which is expected to allow local leaders to retain a share of the additional tax revenue generated by a stronger local economy. This structure is intended to create a direct financial incentive for local authorities to support pro-growth policies. By linking local spending power to local economic performance, the government seeks to encourage fiscal responsibility and strategic planning at the regional level. This approach shifts the focus from centralized budgeting to decentralized economic management.

To support this transition, Healey will announce a £150 million fund to help local authorities scale up their operations and build necessary expertise. Treasury officials have expressed concern about whether some local bodies can manage increasingly large budgets without adequate support. This investment is aimed at addressing capacity gaps and ensuring that local leaders are equipped to handle new financial responsibilities effectively. The goal is to prevent management errors and ensure that the new powers are used efficiently and transparently.

Prime Minister Andy Burnham emphasized that the changes would allow decisions to be made closer to home, a principle he has championed since his tenure as mayor of Greater Manchester. He stated that the current system of seeking Treasury approval for each project is inefficient and not suited to modern governance. Burnham noted that the UK has a more centralized system of tax and spending than many other leading economies. His experience in regional leadership informed the design of this package, which aims to streamline decision-making and reduce bureaucratic delays.

The package was developed in consultation with No 10 North, a unit that has held weekly meetings with local leaders to identify barriers to economic growth. This collaborative process led to a recent change in the Treasury's green book guidance. Under the new rules, projects that can be combined to boost growth, such as housing and transport schemes, can now be assessed together. This flexibility is expected to accelerate project approval and implementation. A white paper on rewiring the state will be published after the budget to outline how the civil service will be reshaped as powers move down from Whitehall.

Healey's budget is also expected to address the cost of living crisis by providing support to poorer households affected by rising energy costs. Modest tax increases, including on banks, are anticipated to help fund these measures. The chancellor has stated a desire to give households and businesses breathing space after the Middle East conflict pushed up energy bills. These higher costs have also increased interest rates on government borrowing, adding pressure to balance the national books. The budget will outline how these competing priorities will be managed in the coming fiscal year.

The statement will also explain the funding plan for the four-year defence investment package announced at the end of Keir Starmer's premiership. However, Healey is not expected to commit to a specific timeline for the UK to reach the target of spending 3% of GDP on defence. This decision is likely to be deferred until the next spending review, which is due later in the year. The budget will thus set the stage for further fiscal decisions while establishing the new framework for local economic empowerment.