Chancellor John Healey is preparing a significant devolution strategy in next week’s budget, aiming to empower local leaders across England. More details of how this will work will be announced at the budget.
The initiative seeks to end the necessity for regional officials to come “cap in hand to Westminster” to seek funding approval for individual projects.
Prime Minister Andy Burnham, who has long advocated for localized decision-making, praised the shift as a necessary evolution for the country, emphasizing that authorities closer to their communities are better equipped to direct resources effectively. “Today we’re putting that into practice, shifting power out of Westminster and into the hands of the people who know their communities best.”.
Central to this package is a new £1.5bn borrowing facility, developed alongside mayors over a two-year planning horizon.
This move addresses long-standing complaints from regional leaders regarding their restricted fiscal independence compared to their counterparts in the US and Europe. Additionally, the budget will allocate an initial £285m in “good growth” funding for the coming year, which local governments can invest in priority sectors such as housing, transport, and high street regeneration. Regional mayors have long complained that they are constrained by their limited borrowing power – in contrast to local authorities in the US and some European countries, which commonly issue their own bonds. Giving them an incentive to back pro-growth policies, local leaders are expected to be allowed to keep some of the additional revenues created by a stronger local economy.
To ensure local authorities can manage these expanded responsibilities, the Treasury will provide £150m in capacity-building support. This funding is designed to help local councils scale their operations and technical expertise amid departmental concerns regarding administrative capacity. This immediate investment serves as a bridge until 2028, when a new system is slated to introduce direct income tax revenue sharing, offering councils greater long-term financial security. The £285m in “good growth” funding is intended to tide local authorities over until a new system comes into force in 2028 whereby some income tax revenue will be handed directly to their areas to give them longer-term security – an idea first mooted by Healey’s predecessor, Rachel Reeves, earlier this year. And Burnham experienced the constraints first-hand as mayor of Greater Manchester, tax and spending in the UK is more centralised than in many other leading economies.
The policy framework follows collaborative discussions held via the No 10 North “situation room,” where leaders identified specific barriers to economic development. These consultations prompted a revision of the “green book” treasury guidance, which now allows for the consolidation of related projects—such as joint transport and housing schemes—to maximize their impact on regional growth. Which has been holding a weekly “situation room” meeting with local leaders, to ask them about the barriers to promoting economic growth, the package has been drawn up in collaboration with No 10 North. Which gives guidanceon which projects taxpayers should fund, this resulted in an announcement this week that the Treasury has called the “green book”.
A forthcoming government white paper on “rewiring the state” will elaborate on the structural changes planned for the civil service as central Whitehall powers are transferred. Despite these ambitions, Healey faces a complex economic backdrop, with the chancellor aiming to provide a “breathing space” for households and businesses suffering from higher energy costs exacerbated by conflict in the Middle East.
The budget will also address fiscal challenges related to higher government borrowing costs. While Healey plans to outline funding strategies for the four-year defence investment program initiated under the previous administration, he is not expected to commit to a 3% of GDP defence spending target. That specific commitment remains deferred, likely until a comprehensive spending review scheduled for next year.
