The short version
- Chancellor John Healey is introducing a £1.5 billion borrowing facility and initial growth funding to empower regional mayors.
- The plan aims to reduce reliance on central government approval for local projects, with long-term tax devolution targeted for 2028.
- Additional measures include capacity building for local authorities and updated guidance on combining infrastructure projects.
Chancellor John Healey is set to present his first budget with a significant focus on decentralizing economic power, introducing a comprehensive package designed to boost regional growth through increased local autonomy. The centerpiece of this fiscal strategy is a new £1.5 billion borrowing facility, which will be developed in partnership with mayors over the coming two years. This initiative addresses longstanding complaints from regional leaders who have felt constrained by limited access to capital markets, particularly when compared to local authorities in the United States and parts of Europe that routinely issue their own bonds.
Alongside the borrowing mechanism, the budget allocates an initial £285 million in what is termed 'good growth' funding for the upcoming year. These resources are intended to be directed toward priorities identified by local leaders, potentially encompassing housing development, transportation infrastructure, and high street regeneration efforts. This immediate injection of capital serves as a bridge until a more permanent structural change takes effect in 2028, at which point some income tax revenue will be transferred directly to local areas. This longer-term security measure was first proposed by Healey’s predecessor, Rachel Reeves, earlier this year.
Prime Minister Andy Burnham has framed these changes as a decisive end to the practice of local officials seeking approval from Westminster for individual projects. He argued that decision-making should occur closer to the communities affected, emphasizing that shifting power away from central government allows those with intimate knowledge of local needs to drive development. The goal is to create a system where local leaders are not dependent on Treasury permission for every initiative, thereby streamlining the process for implementing pro-growth policies.
However, the Treasury has expressed concerns regarding the administrative capacity of some local authorities to manage increasingly large budgets. To address this gap, Healey will announce £150 million in support aimed at helping these entities scale up their operations and build necessary expertise. This investment in institutional capability is seen as critical to ensuring that the devolved powers are exercised effectively and that public funds are managed responsibly at the local level.
The design of this package has been informed by ongoing consultations through No 10 North, which has held weekly meetings with local leaders to identify barriers to economic growth. One outcome of these discussions is a revision to the Treasury’s 'green book,' the guidance document that determines which projects receive taxpayer funding. Under the new rules, combined projects that collectively boost growth, such as integrated housing and transport schemes, can now be evaluated together rather than in isolation.
A government white paper on 'rewiring the state,' scheduled for publication after the budget, will provide further details on how the civil service will be restructured to facilitate this transfer of powers from Whitehall. The overarching aim is to create a more responsive and efficient governance model that leverages local knowledge while maintaining national standards. This structural shift represents a significant departure from the highly centralized tax and spending system that has characterized the UK economy for decades.
Beyond devolution, the budget is expected to include measures to support households facing rising energy costs, which have been exacerbated by geopolitical tensions in the Middle East. Healey has indicated a desire to provide 'breathing space' for families and businesses struggling with higher bills. These pressures have also contributed to increased interest rates on government borrowing, complicating efforts to balance the national accounts.
The chancellor will also outline plans to fully fund a four-year defense investment strategy announced during the final days of Keir Starmer’s premiership. However, he is not expected to commit to spending 3% of GDP on defense at this time. That decision is likely to be deferred until a spending review scheduled for next year, reflecting the complex fiscal trade-offs involved in balancing domestic growth initiatives with international security obligations.
Modest tax increases, including those targeting banks, are also anticipated as part of the broader fiscal strategy. These measures aim to generate additional revenue while minimizing the burden on ordinary taxpayers. The combination of devolution, targeted support for vulnerable households, and careful management of defense spending underscores the multifaceted challenges facing the new government as it seeks to stimulate economic growth without compromising fiscal stability.
As the budget approaches, attention will focus on how these various elements coalesce into a coherent strategy for national renewal. The success of the devolution package will depend not only on the availability of funds but also on the ability of local authorities to absorb and deploy them effectively. With detailed plans for tax devolution still to be finalized, the coming months will be critical in determining whether this shift in power delivers tangible benefits for communities across England.
Sources behind this briefing
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- The Guardian World↗Healey’s first budget to include big devolution package to boost growth
