Chancellor Healey Grants English Mayors New Borrowing Rights and Growth Funds

For residents of English cities, the upcoming fiscal announcement promises a shift in how local infrastructure and services are funded. Local authorities will gain the ability to borrow directly and manage their own spending priorities, reducing the need for case-by-case approval from the central government. This change aims to accelerate projects related to housing, transport, and urban regeneration.

Chancellor John Healey is scheduled to present these measures in his budget statement on Wednesday. The package represents a significant devolution of financial powers, granting regional mayors a new borrowing facility worth 1.5 billion pounds. This facility will be negotiated with mayors over the next two years, addressing a long-standing concern that limited borrowing capabilities have hindered regional growth.

In many other leading economies, including the United States and parts of Europe, local authorities routinely issue their own bonds to finance development. The new UK scheme seeks to bring the country closer to this model. Prime Minister Andy Burnham stated that the changes would end the practice of local leaders having to seek Treasury approval for every individual project. He described the previous system as an inefficient way to run the country, noting that he had experienced these limitations firsthand during his tenure as mayor of Greater Manchester.

In addition to the borrowing facility, the government will provide an initial 285 million pounds in growth funding for the coming year. Local leaders will have the discretion to allocate these funds to their own strategic priorities. This immediate funding is designed to bridge the gap until 2028, when a new revenue-sharing system is planned to take effect.

The longer-term plan involves passing a portion of income tax revenue directly to local areas. This proposal was first introduced by Rachel Reeves, Healey's predecessor, earlier this year. Under this model, local leaders would retain a share of the additional revenue generated by a stronger local economy. This mechanism is intended to incentivize pro-growth policies and provide greater financial security for local authorities.

Recognizing that some local governments may lack the infrastructure to handle larger budgets, the Chancellor will announce 150 million pounds to help them build expertise and scale up their operations. This support is aimed at ensuring that local teams are equipped to manage the increased responsibilities and financial flows associated with the new powers.

The development of this package was facilitated by No 10 North, a unit that has held weekly meetings with local leaders to identify barriers to economic growth. This process led to a recent update to the Treasury's green book guidance. The new rules allow for the combined assessment of projects that work together to boost growth, such as housing and transport schemes, rather than evaluating them in isolation.

A white paper on reshaping the civil service is expected to follow the budget. This document will outline how the state will be reorganized as more powers move from Whitehall to local levels. Healey emphasized that the government is providing local leaders with more money, power, and capacity to make decisions best suited to their communities.

The budget is also expected to include support for households facing rising energy costs, as well as modest tax increases, including on banks. Healey has stated that the goal is to provide breathing space for families and businesses following the impact of the Middle East conflict on global prices. Higher energy costs have also increased the interest rates on government borrowing, adding pressure to the national finances.

Finally, the Chancellor will outline how he intends to fully fund the four-year defense investment plan announced during the final days of Keir Starmer's premiership. He is not expected to specify when the UK will commit to spending 3% of GDP on defense, a decision that is likely to be deferred until a spending review is conducted next year.