New Budget to Shift Fiscal Levers Away From Whitehall

A major restructuring of fiscal authority is on the horizon as Prime Minister Andy Burnham declares an end to local leaders having to go "cap in hand to Westminster" for project approval. Chancellor John Healey is scheduled to detail the devolution package in his budget statement on Wednesday, marking a shift in how capital is accessed and deployed across the country.

The centerpiece of the proposal is the creation of a 1.5 billion pound borrowing facility, which will be designed in consultation with mayors over the coming two years. This initiative addresses long-standing grievances from regional mayors regarding limited borrowing powers, a restriction that contrasts with local authorities in the United States and certain European nations that commonly issue their own bonds. Accompanying this is an initial allocation of 285 million pounds in good growth funding for the next year, intended to support local priorities such as housing, transport links, and high street regeneration until a new system begins passing some income tax revenue directly to local areas in 2028.

To assist with the management of these funds, the Treasury will provide 150 million pounds to help local authorities scale up and build the necessary financial expertise. Chancellor Healey stated that he is giving mayors and local leaders "more money, more power and more capacity to get projects moving, build homes and make the right decisions for their areas." The package was developed in coordination with No 10 North, which has conducted weekly situation room meetings to identify barriers to economic growth, leading to recent changes in the Treasury's guidance on taxpayer funding that allow projects to be assessed together if they boost growth.

The fiscal outlook for the budget remains complicated by external pressures. Higher costs arising from the war in the Middle East have increased energy bills for households and businesses, while simultaneously raising interest rates on government borrowing. To address these issues, the budget is expected to include support for poorer households affected by rising energy costs, alongside modest tax rises, including measures targeting banks. Chancellor Healey has expressed a desire to give households and businesses "breathing space" following these cost increases.

Furthermore, the Chancellor is expected to explain how he plans to fully fund the four-year defense investment plan announced in the final days of Keir Starmer's premiership. No specific timeline is expected regarding when the UK will commit to spending 3% of GDP on defense, a matter central to his resignation from Starmer's cabinet, as that decision is likely to wait for a spending review due at some point next year.