£1.5bn: The new cash pile that reshapes local borrowing

The long-standing friction between regional leaders and the central government in London is set to be resolved with a substantial financial shift. Prime Minister Andy Burnham has confirmed that a new devolution package will be unveiled in the Chancellor's budget statement next Wednesday. This move aims to dismantle the bureaucratic hurdles that have historically forced local authorities to seek permission from Westminster for nearly every major initiative. The central goal is to grant regional mayors the autonomy to manage their own economic growth without constant oversight from Whitehall.

At the heart of this proposal is a new borrowing facility worth £1.5 billion. This funding mechanism will be developed jointly with regional mayors over the next two years. Leaders of these regions have long argued that their limited ability to raise capital has stifled development. In many other nations, including the United States and parts of Europe, local authorities routinely issue their own bonds to fund projects. This new facility seeks to bring England's local governance model closer to that international standard, allowing regions to access capital markets directly.

Beyond the borrowing power, the package includes an initial allocation of £285 million designated as good growth funding for the upcoming year. Local leaders will have discretion over how this money is spent, allowing them to prioritize local needs such as housing, transport links, or the regeneration of high streets. This funding is designed to bridge the financial gap until 2028. By that time, a new system is expected to pass a portion of income tax revenue directly to local areas, providing them with long-term financial security. This idea was first proposed earlier this year by Rachel Reeves, who served as Chancellor before John Healey.

Detailed information regarding the revenue-sharing model will be presented in the budget. The plan suggests that local leaders will retain a share of the additional revenue generated by a stronger local economy. This structure creates a direct financial incentive for local authorities to support policies that drive growth. If the local economy expands, the local government benefits directly from the increased tax base, aligning their financial interests with their development goals.

However, concerns remain within the Treasury regarding the capacity of some local authorities to manage increasingly large budgets. To address this, Chancellor John Healey will announce a £150 million investment aimed at helping these organizations scale up and build necessary expertise. This funding is intended to ensure that local leaders have the administrative tools and professional knowledge required to handle the new responsibilities placed upon them.

Prime Minister Burnham emphasized that the changes would end the need for local leaders to seek Treasury approval for each individual project. He described the previous model as inefficient, stating that it was not a sustainable way to run the country. Burnham, who experienced these limitations first-hand as the mayor of Greater Manchester, has long advocated for decisions to be made closer to the communities they affect. He noted that the UK's tax and spending systems are more centralized than those of many other leading economies.

Chancellor Healey added that local leaders possess the best understanding of their communities' needs for growth. He stated that the government is providing them with more money, more power, and more capacity to get projects moving, build homes, and make decisions that suit their specific areas. This approach is part of a broader strategy to decentralize decision-making and empower local governance.

The package was developed in collaboration with No 10 North, which has been holding weekly situation room meetings with local leaders to identify barriers to economic growth. This work led to a recent announcement that the Treasury has changed the green book, its 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 be assessed together. A white paper on rewiring the state, due after the budget, will set out how the civil service will be reshaped as more powers move down from Whitehall.

Healey's first budget is also expected to include support for poorer households hit 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 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 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.