Local Finance: Mayors Bypass Treasury for £1.5bn Borrowing

Chancellor John Healey will announce a £1.5bn borrowing facility on Wednesday that allows English mayors to manage funds directly without Treasury approval for individual projects. The measure, part of his first budget as chancellor, aims to give local leaders greater autonomy over regional economic development.

Prime Minister Andy Burnham described the plan as an end to local leaders going "cap in hand to Westminster." He stated that the new system stops the need for central government sign-off on every initiative, a process he experienced firsthand while serving as mayor of Greater Manchester.

The package includes an initial allocation of £285m in "good growth" funding for the coming year. Local authorities can spend this money on housing, transport links, or high street regeneration. These funds are designed to bridge the gap until 2028, when a new system will transfer a portion of income tax revenue directly to local areas.

Healey’s predecessor, Rachel Reeves, first proposed the 2028 revenue-sharing model. Under the new rules, local leaders will retain part of the extra revenue generated by a stronger local economy. This structure incentivizes regional officials to support policies that drive local growth.

The government will also allocate £150m to help local authorities build the expertise needed to manage larger budgets. Treasury officials have expressed concern that some councils may lack the capacity to handle increased financial responsibility.

The devolution 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 changes in the Treasury's "green book," allowing projects like housing and transport schemes to be assessed together to boost overall growth.

Healey’s budget will also address rising energy costs for households and include modest tax increases on banks. The chancellor intends to fully fund the four-year defence investment plan announced during the final days of Keir Starmer's premiership. A decision on whether the UK will commit to spending 3% of GDP on defence is expected to wait for a spending review later next year.