£1.5bn: Mayors to Bypass Treasury for Direct Borrowing Authority

£1.5 billion. That is the size of the new borrowing facility Chancellor John Healey plans to offer regional mayors in England when he delivers his first budget on Wednesday. The fund will allow local leaders to access capital directly without seeking permission from the central government for each individual project. Healey will outline the mechanics of the scheme during his statement in the House of Commons.

Prime Minister Andy Burnham described the change as a break from the traditional model where local leaders had to go "cap in hand to Westminster." Burnham stated that this approach is no longer a viable way to run the country. He noted that he experienced these bureaucratic limits firsthand while serving as mayor of Greater Manchester. The new system aims to align UK local finance with practices in the United States and parts of Europe, where local authorities frequently issue their own bonds.

The devolution package includes an initial allocation of £285 million in "good growth" funding for the coming year. Mayors will have the autonomy to direct this money toward local priorities, such as housing, transport links, or high street regeneration. This funding is designed to bridge the gap until 2028. By that year, a new system will transfer a portion of income tax revenue directly to local areas, providing longer-term financial security. Chancellor Rachel Reeves first proposed this revenue-sharing concept earlier this year.

Healey indicated that the budget will include further details on how the revenue-sharing model will function. Local leaders are expected to retain a share of the additional tax revenue generated by a stronger local economy. This structure is intended to incentivize mayors to support policies that promote economic growth. The government believes this alignment of interests will improve long-term fiscal health in the regions.

Despite the expansion of powers, concerns remain within the Treasury regarding the administrative capacity of some local authorities. To address this, Healey will announce a £150 million investment to help councils build expertise and manage larger budgets. The goal is to ensure that local governments can handle the increased responsibility effectively. This support is a prerequisite for the full transfer of borrowing powers.

The policy shift resulted from ongoing discussions between No 10 North and local leaders. A weekly "situation room" meeting identified specific barriers to economic growth. This process led to a recent change in the Treasury's "green book" guidance. Under the new rules, projects that can be combined to boost growth, such as a housing scheme and a transport link, can be assessed together. A white paper on "rewiring the state" will follow the budget to detail how the civil service will be reshaped as powers move away from Whitehall.

Healey said the government is providing mayors with "more money, more power and more capacity" to make decisions for their areas. He emphasized that local leaders understand the specific needs of their communities. The package represents a central part of his strategy to decentralize economic management. Burnham added that decisions which can be made closer to home should be made there.

The budget is also expected to include measures to support households facing rising energy costs. Healey has indicated plans for modest tax increases, including levies on banks. He wants to provide "breathing space" for families and businesses after the Middle East conflict pushed up costs. These higher expenses have also increased interest rates on government borrowing, complicating the fiscal balance.

Healey will address how the government intends to fully fund the four-year defense investment plan announced under Keir Starmer. He is not expected to state when the UK will commit to spending 3% of GDP on defense. That decision is likely to wait for a spending review scheduled for next year. The budget will set the financial framework for these commitments in the coming years.