Local Governments Gain Control Over Billions in New Funding Package

The UK government is preparing to shift significant financial authority away from London and toward regional centers in England, a move designed to streamline decision-making for local economies. Prime Minister Andy Burnham announced that Chancellor John Healey will present this devolution package in his budget statement scheduled for Wednesday.

The core of this initiative is a new borrowing facility worth 1.5 billion pounds, which will be structured in partnership with mayors over the coming two years. Regional leaders have long contended that their current limits on borrowing restrict their ability to invest in major infrastructure. This new approach aligns England more closely with the US and several European nations, where local authorities regularly issue their own bonds to fund projects.

Alongside the borrowing powers, the package includes an initial allocation of 285 million pounds in growth funding for next year. Local leaders will have the discretion to direct these funds toward priorities such as housing, transport links, or high street regeneration. This immediate injection is intended to bridge the gap until 2028, when a new system is expected to pass a portion of income tax revenue directly to local areas, providing them with longer-term financial security.

This revenue-sharing concept was first proposed earlier this year by Rachel Reeves, Healey's predecessor as Chancellor. Further details on this model will be included in the budget. Local leaders are anticipated to retain a share of the additional revenue generated by a stronger local economy. This structure aims to incentivize local governments to support policies that drive growth, as they will directly benefit from the resulting economic expansion.

Despite the expansion of local control, concerns remain within the Treasury regarding whether some local authorities possess the capacity to manage significantly larger budgets. To address this, Healey will announce a 150 million pound package to help these institutions scale up operations and build internal expertise. This investment is meant to ensure that new powers are matched by the administrative capability to use them effectively.

Prime Minister Burnham stated that these changes will end the requirement for local leaders to seek Treasury approval for every individual project. He described the current process as inefficient, noting that he is calling an end to local leaders going to Westminster with their heads in hand. He emphasized that when he became prime minister, he committed to the principle that decisions should be made closer to home whenever possible. His experience as the mayor of Greater Manchester gave him a direct understanding of the limitations imposed by the UK's centralized tax and spending system, which remains more centralized than in many other leading economies.

Chancellor Healey supported the shift by asserting that mayors and local leaders have a deeper understanding of their communities' specific needs. He stated that the government is providing them with more money, power, and capacity to move projects forward, build homes, and make decisions tailored to their areas. The package was developed in consultation with No 10 North, a unit that has held weekly meetings with local leaders to identify barriers to economic growth.

These consultations led to a recent announcement that the Treasury has updated the green book, its guidance on public investment. Under the new rules, projects that can be combined to boost growth, such as a housing scheme paired with a transport project, can now be assessed together. A white paper on reshaping the civil service is expected to follow the budget, detailing how the state will be restructured as more powers move down from Whitehall.

Healey's first budget is also expected to include support for poorer households dealing with rising energy costs, alongside modest tax increases on banks. He has expressed a desire to provide breathing space for households and businesses after the war in the Middle East pushed up bills. These higher costs have also increased interest rates on government borrowing, making fiscal balance more challenging. The Chancellor will also explain how he intends to fully fund the four-year defence investment plan announced at the end of Keir Starmer's premiership, though he is not expected to commit to the 3 percent of GDP defence spending target until a spending review next year.