Mayors in England to control new 1.5bn pound borrowing fund

Regional leaders in England will gain direct access to a 1.5 billion pound borrowing facility under a devolution package due in next week's budget. Prime Minister Andy Burnham announced the plan on Friday, stating that local leaders will no longer need to seek approval from Westminster for individual projects. The measures are set to be detailed by Chancellor John Healey in his statement on Wednesday.

The borrowing facility is the central component of the new framework. Mayors will work with the government to draw up the terms of this loan scheme over the next two years. Regional leaders have long argued that their current borrowing limits restrict their ability to invest in local infrastructure. In the United States and several European nations, local authorities regularly issue their own bonds without such central constraints.

The package also allocates 285 million pounds in initial growth funding for next year. Local leaders will have the authority to spend this money on their own priorities, which could include housing developments, transport links, or high street regeneration. This funding is intended to bridge the gap until 2028, when a new system will pass a portion of income tax revenue directly to local areas. That revenue-sharing model was first proposed earlier this year by Rachel Reeves, Healey's predecessor as chancellor.

Further details on how the revenue-sharing model will work are expected in the budget. Local leaders are anticipated to retain part of the extra revenue generated by a stronger local economy. This arrangement aims to give mayors a financial incentive to support policies that drive economic growth in their regions.

The Treasury has expressed concerns about whether some local authorities possess the capacity to manage increasingly large budgets. To address this, Healey will announce a 150 million pound package to help local governments scale up and build internal expertise. Burnham said the changes would end the requirement for local leaders to seek Treasury approval for each individual project. "I'm calling time on local leaders going cap in hand to Westminster. That is no way to run a country," he said.

Burnham noted that he had promised decisions that can be made closer to home should be made closer to home. He cited his experience as mayor of Greater Manchester, where he encountered the limits of the UK's centralized tax and spending system. Healey added that mayors and local leaders know what their communities need to grow. He stated the government was giving them more money, more power, and more capacity to get projects moving, build homes, and make the right decisions for their areas.

The package was developed in consultation with No 10 North, a unit holding weekly meetings with local leaders to identify barriers to economic growth. That work led to an announcement this week that the Treasury changed its green book guidance on public investment. Under the new rules, projects that can be combined to boost growth, such as a housing scheme and a transport scheme, can be assessed together. A white paper on rewiring the state is due after the budget and will set out how the civil service will be reshaped as more powers move from Whitehall.

Healey's first budget is also expected to include support for poorer households affected by rising energy costs, along with modest tax rises, including on banks. He has repeatedly said he wants to give households and businesses breathing space after the war in the Middle East pushed up bills. Those higher costs have also raised the interest rates on government borrowing, making it harder to balance the books.

The chancellor will explain how he plans to fully fund the four-year defence investment plan announced in the final days of Keir Starmer's premiership. He is not expected to say when the UK will commit to spending 3% of GDP on defence, an issue central to his resignation from Starmer's cabinet. That decision is likely to wait for a spending review due at some point next year.