Chancellor Healey Decentralizes Local Finance in First Budget

English local leaders will gain direct control over billion-pound borrowing schemes and a share of income tax revenue under a devolution package to be announced Wednesday. Chancellor John Healey plans to present the measures in his first budget, marking a structural shift away from the centralized fiscal management that has characterized British public finance for decades.

The core of the proposal is a new £1.5 billion borrowing facility. This fund will be negotiated directly with regional mayors over the next two years. Currently, local authorities in England lack the autonomy to issue their own bonds, a constraint that limits their ability to invest in infrastructure. By contrast, local governments in the United States and various European nations routinely access bond markets to finance projects. This new mechanism aims to close that gap by allowing mayors to secure capital without waiting for Westminster approval.

Healey will also announce £285 million in immediate funding for what the government describes as good growth projects. Local leaders will have discretion over how to allocate these funds, which could be directed toward housing developments, transport links, or high street regeneration. This initial allocation is designed to bridge the financial gap until 2028. By that year, a new system will begin passing a portion of income tax revenue directly to local areas. This model, first proposed by former Chancellor Rachel Reeves, is intended to provide longer-term fiscal security to regions.

The revenue-sharing model will allow local authorities to retain part of the extra income generated by a stronger local economy. This financial incentive is meant to encourage local leaders to support policies that drive growth. However, internal concerns within the Treasury suggest that some councils may lack the capacity to manage larger budgets. To address this, Healey will announce £150 million in support to help local authorities build the necessary expertise and scale up their administrative functions.

Prime Minister Andy Burnham stated that the reforms will end the need for local leaders to seek Treasury approval for each individual project. He described the previous system as requiring officials to go cap in hand to Westminster, a process he argued was inefficient for running a country. Burnham, who previously served as mayor of Greater Manchester, experienced these centralized limits first-hand. He noted that the UK taxes and spends more centrally than many other leading economies.

The package was developed in consultation with No 10 North, which has held weekly situation room meetings with local leaders to identify barriers to economic growth. This collaboration led to a recent update to the Treasury’s Green Book guidance. Under the new rules, projects that can be combined to boost growth, such as a housing scheme and a transport link, can now be assessed together. A white paper on rewiring the state is due after the budget to outline how the civil service will be reshaped as powers move from Whitehall to local authorities.

The budget will also include support for households facing rising energy costs and modest tax increases, including on banks. Healey has stated that the goal is to provide breathing space for households and businesses after the Middle East war pushed up energy bills. These higher costs have also increased interest rates on government borrowing, adding pressure to balance the public accounts. The chancellor will explain how to fully fund the four-year defence investment plan announced during the final days of Keir Starmer’s premiership, though the decision on committing to 3% of GDP for defence is expected to wait for a spending review next year.