Healey's First Budget to Hand Local Leaders New Borrowing Powers and Growth Funding

Local leaders in England will no longer have to go "cap in hand to Westminster" under a devolution package due in next week's budget, according to Prime Minister Andy Burnham. Chancellor John Healey is set to deliver the plans in his statement on Wednesday.

Central to the package is a new £1.5bn borrowing facility, which will be drawn up with mayors over the next two years. Regional mayors have long argued that their limited borrowing powers hold them back. Local authorities in the US and some European countries, by contrast, commonly issue their own bonds.

The package also includes an initial £285m of "good growth" funding next year. Local leaders will be able to spend it on their own priorities, which could cover housing, transport links or high street regeneration. The money is meant to bridge the gap until 2028, when a new system will pass some income tax revenue directly to local areas to give them longer-term security. That idea was first floated earlier this year by Healey's predecessor, Rachel Reeves.

Further detail on the revenue-sharing model will come in the budget. Local leaders are expected to keep part of the extra revenue generated by a stronger local economy, which would give them a reason to support pro-growth policies.

There are concerns inside the Treasury about whether some local authorities can manage increasingly large budgets. Healey will therefore announce £150m to help them scale up and build expertise.

Burnham said the changes would end the need for local leaders to seek Treasury approval for each individual project. "I'm calling time on local leaders going cap in hand to Westminster. That is no way to run a country," he said. He added that when he became prime minister he had said decisions that can be made closer to home should be. Tax and spending in the UK is more centralised than in many other leading economies, and Burnham experienced those limits first-hand as mayor of Greater Manchester.

Healey said mayors and local leaders know what their communities need in order to grow. He said the government was giving them "more money, more power and more capacity to get projects moving, build homes and make the right decisions for their areas."

The package was developed with No 10 North, which has been holding a weekly "situation room" meeting with local leaders to hear about barriers to economic growth. That work led to an announcement this week that the Treasury has changed the "green book", its guidance on which projects taxpayers should fund. Under the new rules, projects that can be combined to boost growth, such as a housing scheme and a transport scheme, can be assessed together. A white paper on "rewiring the state", due after the budget, will set out how the civil service will be reshaped as more powers move down from Whitehall.

Healey's first budget is also expected to include support for poorer households hit by rising energy costs, along with modest tax rises, including on banks. He has repeatedly said he wants to give households and businesses "breathing space" after the war in the Middle East pushed up bills. Those higher costs have also raised the interest rates on government borrowing, making it harder to balance the books.

The chancellor will also explain how he plans to fully fund the four-year defence investment plan announced in the final days of Keir Starmer's premiership. He is not expected to say when the UK will commit to spending 3% of GDP on defence, an issue central to his resignation from Starmer's cabinet. That decision is likely to wait for a spending review due at some point next year.