Mayors get 1.5bn to bypass Treasury and fund local growth directly

Prime Minister Andy Burnham stated that local leaders in England will no longer need to seek approval from central government for individual projects. This shift aims to resolve the structural imbalance where UK tax and spending decisions are more centralized than in many other leading economies. The new framework grants regional mayors direct authority over a substantial new financial tool.

The core of the proposal is a £1.5 billion borrowing facility. Regional mayors have previously argued that limited borrowing powers hindered local development, particularly when compared to local authorities in the United States and parts of Europe that issue their own bonds. Under the new rules, this facility will be structured with mayors over the next two years, allowing them to access capital without Treasury sign-off for each transaction.

Alongside the borrowing facility, the package allocates an initial £285 million in funding for the coming year. Local leaders will have discretion to spend this money on priorities such as housing, transport links, or high street regeneration. This allocation is designed to bridge the gap until 2028, when a new system will pass a portion of income tax revenue directly to local areas. Chancellor John Healey’s predecessor, Rachel Reeves, first proposed this long-term revenue-sharing model earlier this year.

The revenue-sharing mechanism will allow local leaders to retain part of the additional revenue generated by a stronger local economy. This structure incentivizes support for pro-growth policies. Healey plans to provide further details on this model during his statement on Wednesday. The government believes that giving mayors more financial autonomy will help them make decisions tailored to their specific communities.

Concerns within the Treasury regarding the capacity of some local authorities to manage larger budgets led to the inclusion of a £150 million support package. This funding is intended to help local governments scale up operations and build internal 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.

Recent changes to the Treasury’s “green book” guidance allow for the combined assessment of projects that boost growth, such as housing and transport schemes. A white paper titled “rewiring the state” is due after the budget and will outline how the civil service will be reshaped as more powers move from Whitehall to local authorities. Burnham emphasized that decisions made closer to home should remain there, a view shaped by his experience as mayor of Greater Manchester.

Healey’s first budget is also expected to include support for poorer households affected by rising energy costs and modest tax rises, including on banks. The chancellor aims to provide “breathing space” for households and businesses after the war in the Middle East increased bills and raised government borrowing rates. He will also explain how the four-year defence investment plan announced during the final days of Keir Starmer’s premiership will be fully funded.