Healey grants local leaders new borrowing powers in landmark budget shift

England's approach to public finance has long been defined by strict centralization, a structure that Prime Minister Andy Burnham intends to dismantle with a major policy overhaul. The government is set to introduce a comprehensive devolution package in the upcoming budget statement, marking a decisive break from traditional fiscal controls.

Chancellor John Healey will present the details of this initiative on Wednesday. The centerpiece of the plan is a new borrowing facility worth 1.5 billion pounds. This fund is designed to be negotiated directly with regional mayors over the next two years, addressing a long-standing complaint from local leaders that their limited access to credit markets has hindered regional development.

International comparisons highlight the significance of this change. Local authorities in the United States and several European nations frequently issue their own bonds to finance projects. By contrast, English councils have largely relied on central government approval for such expenditures. The new framework seeks to align England's local finance models more closely with these international standards.

In addition to borrowing powers, the package allocates an initial 285 million pounds in growth funding for the coming year. Local leaders will have discretion over how this money is deployed, with options including housing projects, transport infrastructure, and high street regeneration. This funding is intended to serve as a bridge until 2028, when a new system will begin directing a portion of income tax revenue directly to local areas.

The revenue-sharing model, first proposed by former Chancellor Rachel Reeves earlier this year, aims to provide longer-term financial security for local governments. Under the new rules, local authorities are expected to retain a share of the additional revenue generated by a stronger local economy. This mechanism is designed to incentivize local leaders to support policies that drive economic growth.

Despite the expansion of local powers, internal concerns remain within the Treasury regarding the administrative capacity of some councils to manage larger budgets. To address this, Healey will announce a 150 million pound fund to help local authorities scale up their operations and build necessary expertise. This investment is seen as crucial for ensuring that the transfer of power does not lead to mismanagement.

Prime Minister Burnham emphasized that the changes will end the era of local leaders seeking Treasury approval for every individual project. He described the previous process as inefficient, stating that it was no way to run a country. Burnham, who previously served as mayor of Greater Manchester, has firsthand experience with the limitations of centralized decision-making. He argued that decisions should be made closer to home whenever possible.

Healey noted that mayors and local leaders possess a deeper understanding of their communities' specific needs. The government is providing them with more money, power, and capacity to accelerate projects and build homes. The package was developed in collaboration with No 10 North, which has held weekly meetings with local leaders to identify barriers to economic growth. This work has already led to changes in the Treasury's green book, allowing combined assessment of projects that boost growth, such as housing and transport schemes.

The budget is also expected to include support for households facing rising energy costs and modest tax increases, including on banks. Healey aims to provide breathing space for households and businesses after the Middle East conflict pushed up bills. Additionally, the chancellor will explain how he plans to fund the four-year defense investment plan announced under the previous leadership, though a decision on committing to 3% of GDP for defense spending is likely to wait for a future spending review.