£1.5 Billion: The New Borrowing Limit for England's Regional Mayors

Chancellor John Healey is preparing to announce a significant shift in local government finance during his first budget statement on Wednesday. The centerpiece of the plan is a new borrowing facility worth 1.5 billion pounds that will be established with regional mayors over the next two years. This move aims to address long-standing complaints from local leaders who have felt constrained by limited access to capital. By providing this new avenue for debt, the government hopes to mirror practices seen in the United States and parts of Europe, where local authorities routinely issue their own bonds to fund development.

Alongside the borrowing powers, the package includes an initial allocation of 285 million pounds designated as good growth funding for the coming year. Local leaders will have discretion over how this money is spent, with potential uses including housing projects, transport links, or the regeneration of high streets. This immediate funding is intended to serve as a bridge until 2028. That is when a new system is scheduled to begin passing a portion of income tax revenue directly to local areas, providing them with longer term financial security. This structural change was first proposed by former Chancellor Rachel Reeves earlier in the year.

Prime Minister Andy Burnham has framed this devolution as a necessary correction to the country's centralized approach to governance. He stated that the changes will end the era where local leaders must seek Treasury approval for every individual project. Burnham remarked, I am calling time on local leaders going cap in hand to Westminster. That is no way to run a country. He emphasized that his administration prioritizes decision making that occurs as close to home as possible. As the former mayor of Greater Manchester, Burnham has personal experience with the limitations imposed by a fiscal system that is more centralized than those of many other leading economies.

There are internal concerns within the Treasury regarding the administrative capacity of some local authorities to manage increasingly large budgets. To address this, Healey will announce a 150 million pound fund designed to help these bodies scale up their operations and build the necessary expertise. Healey described the overall package as providing local leaders with more money, more power, and more capacity to get projects moving, build homes, and make the right decisions for their specific areas. He argued that mayors and local officials have the best understanding of their communities' needs for economic growth.

The development of this package was a collaborative effort involving No 10 North, which has been holding weekly situation room meetings with local leaders to identify barriers to economic growth. This ongoing dialogue led to an announcement this week that the Treasury has updated the green book, its guidance on which projects deserve taxpayer funding. Under the new rules, projects that can be combined to boost growth, such as a housing scheme paired with a transport scheme, can now be assessed together. A white paper on rewiring the state is due after the budget and will outline how the civil service will be reshaped as more powers are devolved from Whitehall.

The budget is also expected to include measures to support poorer households that are feeling the impact of rising energy costs. Healey has indicated that modest tax rises, including those on banks, are part of the plan. He has repeatedly stated his desire to provide households and businesses with breathing space after the war in the Middle East pushed up bills. Those higher costs have also contributed to increased interest rates on government borrowing, which complicates the process of balancing the national books.

In addition to local government changes, the Chancellor must explain how he plans to fully fund the four year defence investment plan. This plan was announced in the final days of Keir Starmer's premiership. Healey is not expected to commit to a specific timeline for the UK to reach the target of spending 3 percent of GDP on defence. That issue was central to his resignation from Starmer's cabinet and is likely to wait for a spending review due at some point next year.

The next few weeks will be critical for Healey as he navigates these complex fiscal adjustments. The success of the devolution package will depend on how effectively local leaders utilize the new borrowing powers and growth funds. Meanwhile, the public and political opposition will be watching closely to see if the government can deliver the promised breathing space for households while simultaneously funding increased defence spending and managing the national debt.