Mayors gain direct £1.5bn borrowing power

Local leaders in England will receive direct control over a new £1.5 billion borrowing facility in a package due next week.

The Chancellor, John Healey, will present the plan in his budget statement on Wednesday. The facility will be structured with mayors over the following two years. It aims to replace the current process where local authorities seek central approval for individual projects.

The package includes an initial £285 million in growth funding for the next fiscal year. Mayors will spend this money on local priorities such as housing, transport, or high street regeneration. This funding is designed to bridge the gap until 2028. A new system planned for that date will pass some income tax revenue directly to local areas.

Prime Minister Andy Burnham stated the changes end the need for local leaders to go cap in hand to Westminster. He described the current centralized model as an inefficient way to run the country. Burnham noted that tax and spending in the UK are more centralized than in many other leading economies.

Healey said local leaders understand their communities' needs better than central government. He stated the government is giving them more money, power, and capacity to build homes and make local decisions. The plan was developed with No 10 North, which has held weekly meetings with local leaders to identify barriers to economic growth.

Treasury officials have expressed concern about whether some local authorities can manage larger budgets. To address this, the budget will include £150 million to help local governments build expertise and scale up their operations. This capacity building is intended to ensure local leaders can handle the new financial responsibilities.

The budget will also detail a revenue-sharing model expected to be fully implemented by 2028. Local leaders will retain part of the extra revenue generated by a stronger local economy. This structure is meant to incentivize local support for policies that drive growth. A white paper on reshaping the civil service is due after the budget to outline how powers will move from Whitehall.

The Chancellor will also announce support for households facing rising energy costs. He expects to propose modest tax rises, including on banks, to provide breathing space for businesses and families after the Middle East war pushed up bills. Healey will also explain how he plans to fund the four-year defence investment plan announced during the final days of Keir Starmer's premiership.