1.5 Billion Pound Fund Set to Empower Local Mayors

The United Kingdom is moving toward a more decentralized model of public finance. Prime Minister Andy Burnham outlined this shift as his government prepares for the next fiscal statement.

Chancellor John Healey will present a devolution package in his budget speech on Wednesday. The centerpiece is a new borrowing facility worth 1.5 billion pounds. This money will be allocated over the next two years in consultation with regional mayors. These leaders have long argued that limited access to credit has hindered their ability to develop their regions. In many European countries and the United States, local governments regularly issue their own bonds to fund projects.

The package also provides 285 million pounds in initial funding for the coming year. Local authorities will have the discretion to spend this money on priorities such as housing, transport links, or high street regeneration. This grant is designed to bridge the gap until 2028. By that time, a new system is expected to transfer a portion of income tax revenue directly to local areas. This mechanism will provide longer-term financial security. The concept was first introduced by Healey's predecessor, Rachel Reeves, earlier this year.

Further details on this revenue-sharing model are expected in the budget. Local leaders would retain a share of the additional revenue generated by a stronger local economy. This arrangement aims to incentivize support for policies that drive growth. However, concerns remain within the Treasury regarding the capacity of some local authorities to manage larger budgets. To address this, Healey will announce 150 million pounds to help these bodies build expertise and scale up their operations.

Burnham stated that these changes will end the practice of local leaders seeking Treasury approval for every individual project. He noted that he had promised to let decisions be made closer to home. As former mayor of Greater Manchester, he experienced the limits of centralized tax and spending firsthand. He described the current system as unsustainable for running a country.

Healey emphasized that local leaders understand their communities' specific needs. He said the government is providing them with more money, power, and capacity to build homes and make local decisions. The package was developed with No 10 North, which has held weekly meetings with local leaders to identify barriers to economic growth. This collaboration led to a recent change in the green book, the government's guidance on public investment. Projects that can be combined to boost growth, such as housing and transport schemes, can now be assessed together. A white paper on reshaping the civil service is due after the budget.

Healey's first budget is also expected to include support for poorer households facing rising energy costs. Modest tax rises, including on banks, are anticipated. The chancellor has stated he wants to give households and businesses breathing space after the war in the Middle East pushed up bills. Higher costs have also raised interest rates on government borrowing, making it harder to balance the books. Healey will also explain how he plans to fund the four-year defence investment plan announced at the end of Keir Starmer's premiership. He is not expected to declare when the UK will commit to spending 3% of GDP on defence, a decision likely to wait for a spending review next year.