Fiscal Devolution: New Borrowing Powers for English Mayors

Chancellor John Healey is expected to present a significant shift in fiscal policy during his statement on Wednesday. The announcement marks a pivotal moment for local governance in England, as the government prepares to grant regional leaders new financial autonomy. This development follows a period of intense consultation between central government and local authorities regarding the barriers to economic growth.

The core of the proposal is a new borrowing facility valued at 1.5 billion pounds. This fund will be negotiated with mayors over the next two years, allowing them to access capital without seeking individual approval from the Treasury for every project. Regional leaders have long argued that their current limited borrowing powers restrict their ability to develop infrastructure and housing. This move aligns England more closely with the practices of the United States and parts of Europe, where local authorities routinely issue their own bonds to finance local projects.

Alongside the borrowing mechanism, the package includes an initial allocation of 285 million pounds designated for good growth. Local leaders will have the discretion to spend this money on priorities such as housing, transport links, or high street regeneration. This funding is intended to bridge the gap until 2028, when a new revenue sharing system is scheduled to begin. That future system will pass a portion of income tax revenue directly to local areas, providing longer term financial security. The concept was first proposed earlier this year by Healey's predecessor, Rachel Reeves.

Prime Minister Andy Burnham framed the changes as an end to a centralized model that he believes is inefficient. He stated that local leaders should no longer have to go cap in hand to Westminster for approval on individual projects. Burnham noted that he experienced these limitations firsthand during his tenure as mayor of Greater Manchester. He emphasized that tax and spending in the UK are more centralized than in many other leading economies, and that decisions made closer to home are often more effective.

Healey reinforced this message by stating that the government is providing more money, more power, and more capacity to local areas. He argued that mayors and local leaders possess the best understanding of their communities' needs for growth. The goal is to enable them to build homes and make the right decisions for their specific regions without excessive bureaucratic delay.

However, there are caveats regarding the implementation of these expanded powers. Concerns exist within the Treasury about whether some local authorities have the administrative capacity to manage increasingly large budgets. To address this, Healey will announce 150 million pounds to help local governments scale up and build the necessary expertise. This investment is seen as crucial for ensuring that the new financial tools are used effectively and responsibly.

The package was developed in collaboration with No 10 North, a team that has held weekly situation room meetings with local leaders to identify obstacles to growth. This work led to a change in the Treasury's green book, the guidance on which projects taxpayers should fund. Under the new rules, projects that can be combined to boost growth, such as a housing scheme and a transport scheme, can now be assessed together. A white paper on rewiring the state is also due after the budget, which will outline how the civil service will be reshaped as more powers move from Whitehall.

The budget is expected to include other key announcements. Healey will likely provide support for poorer households affected by rising energy costs, alongside modest tax rises, including on banks. He has repeatedly 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 raised interest rates on government borrowing, making it more challenging to balance the books. The chancellor will also 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 specify when the UK will commit to spending 3% of GDP on defence, a decision likely to wait for a spending review due next year.