Mayors to control new 1.5 billion pound borrowing fund

The United Kingdom has a centralized fiscal system where local governments often request funds from the central state. Chancellor John Healey will present a plan to change that dynamic in his budget statement scheduled for Wednesday.

The proposal includes a new borrowing facility worth 1.5 billion pounds. This fund will be developed in partnership with regional mayors over the next two years. It aims to replace the current process where local leaders must seek individual approval from the Treasury for specific projects. The package also provides an initial 285 million pounds in growth funding for the coming year. Local officials will decide how to allocate these funds to priorities such as housing, transport, or commercial regeneration.

Prime Minister Andy Burnham said the changes would end the need for local leaders to seek Treasury approval for each individual project. He described the old method as going cap in hand to Westminster and stated that is no way to run a country. Healey agreed that mayors and local leaders know what their communities need to grow. He said the government is giving them more money, more power, and more capacity to get projects moving and build homes.

The new system is designed to bridge the gap until 2028. By that time, a new model will pass some income tax revenue directly to local areas. This will give local authorities longer-term financial security. The budget will provide further details on this revenue-sharing model. Local leaders are expected to keep part of the extra revenue generated by a stronger local economy. This creates an incentive for them to support policies that promote growth.

Treasury officials have expressed concern that some local authorities may struggle to manage larger budgets. To address this, Healey will announce 150 million pounds to help these bodies build expertise and scale up their operations. The plan was developed 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 Treasury's green book guidance. Projects that can be combined to boost growth, such as a housing scheme and a transport scheme, can now be assessed together.

The budget will also include support for poorer households facing rising energy costs. Healey expects to announce modest tax rises, including on banks. He has said he wants to give households and businesses breathing space after the war in the Middle East pushed up bills. He will also explain how the government will fully fund the four-year defense investment plan announced by Keir Starmer's government. He is not expected to say when the UK will commit to spending 3% of gross domestic product on defense. That decision is likely to wait for a spending review due next year.