Chancellor to grant local leaders new borrowing powers in budget

Chancellor John Healey is set to unveil a significant shift in financial autonomy for English local leaders during his first budget statement next Wednesday. The centerpiece of the announcement is a new 1.5 billion pound borrowing facility. This mechanism will be drafted over the next two years in collaboration with regional mayors, marking a major departure from previous central government practices.

Regional mayors have long argued that their current restrictions on borrowing hinder local development. They have frequently pointed to counterparts in the United States and parts of Europe, where local authorities routinely issue their own bonds. The new package also includes an initial 285 million pound allocation designated for good growth funding next year. Local authorities will have the discretion to direct this money toward their own priorities, such as housing projects, transport infrastructure, or high street regeneration.

This immediate funding is designed to bridge the gap until 2028. By that time, a new system will allow some income tax revenue to flow directly to local areas, providing greater long-term financial security. This concept was first proposed earlier this year by Healey's predecessor, Rachel Reeves. The budget will provide further details on this revenue-sharing model, which aims to allow local leaders to retain a portion of the extra income generated by a stronger local economy. This structure is intended to incentivize support for pro-growth policies.

Prime Minister Andy Burnham stated that these changes would end the need for local leaders to seek Treasury approval for every individual project. He described the previous approach as inefficient and said he is calling time on local leaders going cap in hand to Westminster. Burnham noted that he experienced these centralization limits firsthand during his tenure as mayor of Greater Manchester. Healey agreed, stating that the government is providing mayors with more money, power, and capacity to build homes and make decisions suited to their specific communities.

Concerns remain within the Treasury regarding whether some local authorities possess the expertise to manage increasingly large budgets. To address this, Healey will announce 150 million pound in support to help these bodies scale up their capabilities. The package was developed in partnership with No 10 North, which has held weekly meetings with local leaders to identify barriers to economic growth. This collaboration led to a change in the green book guidance, allowing combined projects, such as housing and transport schemes, to be assessed together for funding.

The budget will also address the financial impact of rising energy costs on poorer households, along with modest tax increases, including those on banks. Healey has emphasized the need to give households and businesses breathing space after the war in the Middle East pushed up bills. These higher costs have also increased interest rates on government borrowing, complicating the effort to balance the books. Finally, the chancellor will explain how he intends to fully fund the four-year defence investment plan. He is not expected to specify when the UK will commit to spending three percent of GDP on defence, a decision likely to wait for a spending review next year.

A white paper on rewiring the state is due after the budget will outline how the civil service will be reshaped as more powers move from Whitehall to local levels.