New Borrowing Rights for English Local Leaders

Residents of English cities and towns may soon benefit from faster infrastructure upgrades and housing projects as local leaders gain new financial autonomy. Under a devolution package scheduled for announcement in next week's budget, regional mayors will no longer need to seek individual approval from the central government for every initiative. This shift aims to streamline decision-making processes and allow local authorities to respond more directly to the specific needs of their communities.

The core of this new arrangement is a 1.5 billion pound borrowing facility that will be negotiated with mayors over the next two years. Regional leaders have long argued that their current limited ability to borrow restricts their development potential. In contrast to England, local authorities in the United States and parts of Europe routinely issue their own bonds. To bridge the gap until 2028, an initial 285 million pound in growth funding will be available next year. Local leaders can allocate these funds to priorities such as housing, transport links, or high street regeneration. A more permanent solution is planned for 2028, when a new system will route some income tax revenue directly to local areas, providing long-term financial security. This concept was first proposed by Rachel Reeves, the predecessor of the current Chancellor.

Prime Minister Andy Burnham stated that the changes would end the practice of local leaders seeking Treasury approval for each individual project. He described the previous method as an inefficient way to run the country. Burnham, who previously served as mayor of Greater Manchester, noted that he experienced these centralized limits firsthand. He emphasized that decisions which can be made closer to home should indeed be made locally. Chancellor John Healey added that mayors understand the specific requirements of their communities. He claimed the government is providing them with more resources and authority to build homes and execute local projects effectively.

Despite the expanded powers, there are concerns within the Treasury regarding the capacity of some local authorities to manage increasingly large budgets. To address this, Healey will announce a 150 million pound package to help these bodies scale up and build necessary expertise. The package was developed in consultation with No 10 North, which has held weekly meetings with local leaders to identify barriers to economic growth. This collaboration led to a change in the green book, the government’s guidance on public investment. Under the new rules, projects that can be combined to boost growth, such as housing and transport schemes, can be assessed together. A white paper on reshaping the civil service is also expected after the budget.

The budget statement is expected to include support for poorer households affected by rising energy costs, along with modest tax increases, including on banks. Healey has stated a desire to give households and businesses breathing space after the Middle East conflict pushed up bills. These higher costs have also increased interest rates on government borrowing, making it difficult to balance the books. The Chancellor will also explain how he plans to fully fund the four-year defence investment plan announced at the end of Keir Starmer’s premiership. However, he is not expected to state when the UK will commit to spending three percent of gross domestic product on defence. That decision is likely to wait for a spending review due later next year.