Healey’s first budget to include big devolution package to boost growth

Andy Burnham has promised that local leaders in England will no longer have to come "cap in hand to Westminster" ahead of a fresh drive to devolve spending power in next week's budget. In his statement on Wednesday, the chancellor, John Healey, will include plans for a new £1.5bn borrowing facility, to be drawn up in collaboration with mayors over the next two years.

Devolution plans

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. The borrowing plan will form part of a big devolution package aimed at boosting regional economic growth.

This will also include the allocation of an initial £285m "good growth" funding next year, to be spent on local leaders' priorities – which could include housing, transport links or high street regeneration. Amid fears in the Treasury about whether some local authorities have the capacity to administer increasingly large budgets, Healey will also announce £150m of support to help them scale up and build expertise.

Funding mechanism

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.

More details of how this will work will be announced at the budget. Local leaders are expected to be allowed to keep some of the additional revenues created by a stronger local economy, giving them an incentive to back pro-growth policies. Tax and spending in the UK is more centralised than in many other leading economies, and Burnham experienced the constraints first-hand as mayor of Greater Manchester.

Budget context

The package has been drawn up in collaboration with No 10 North, which has been holding a weekly "situation room" meeting with local leaders, to ask them about the barriers to promoting economic growth. This resulted in an announcement this week that the Treasury has called the "green book", which gives guidance on which projects taxpayers should fund.

Under the new rules, projects that can be combined to boost growth – a housing and a transport scheme, for example – can be considered together. A government white paper on "rewiring the state", due to be published after the budget, will set out more details of how the civil service will be reshaped, as more powers are passed down from Whitehall.

Alongside the devolution plans, Healey's first budget is expected to include support for poorer households hit by rising energy costs; and modest tax rises, including on banks. The chancellor has repeatedly said he wants to offer a "breathing space" to households and businesses that have struggled as the war in the Middle East has driven up bills. These higher costs have also pushed up the interest rates on government borrowing, making it harder for Healey to balance the books.

He will set out how he plans to fully fund the four-year defence investment plan announced in the dying days of Keir Starmer's premiership. However, Healey is not expected to say when the UK will commit to spending 3% of GDP on defence – an issue that was central to his resignation from Starmer's cabinet. This is likely to be delayed until a spending review due at some point next year.