Healey's first budget to unveil major devolution package, with £1.5bn borrowing facility for English mayors

Next Wednesday, John Healey will stand up to deliver his first budget as chancellor, and one of its centrepieces will be a plan to hand English mayors and local leaders more control over money. Andy Burnham, now prime minister, has framed it in blunt terms: local leaders, he says, should no longer have to go "cap in hand to Westminster."

The headline measure is a new £1.5bn borrowing facility, which the Treasury will draw up in collaboration with mayors over the next two years. Regional mayors have long complained that their limited borrowing power holds them back, particularly when compared with local authorities in the US and some European countries, which commonly issue their own bonds.

The borrowing plan sits inside a wider devolution package aimed at lifting regional economic growth. It includes an initial £285m of "good growth" funding, to be allocated next year and spent on local leaders' own priorities. Those could include housing, transport links or high street regeneration. The money is meant to tide local authorities over until 2028, when a new system takes effect under which some income tax revenue will be passed directly to their areas to give them longer-term security. That idea was first floated earlier this year by Healey's predecessor, Rachel Reeves. More detail on how it will work is due at the budget, and local leaders are expected to be allowed to keep some of the extra revenue generated by a stronger local economy, giving them a reason to back pro-growth policies.

There is a note of caution inside the Treasury. Officials are worried that some local authorities may lack the capacity to administer increasingly large budgets. Healey will therefore also announce £150m of support to help them scale up and build expertise.

Burnham said the changes would end the need to seek Treasury approval for each individual project. "That is no way to run a country," he said, recalling that on becoming prime minister he had pledged that decisions which can be made closer to home should be. He described the package as putting that into practice. He knows the constraints first-hand from his years as mayor of Greater Manchester, and tax and spending in the UK is more centralised than in many other leading economies. Healey said mayors and local leaders know what their communities need to grow, which is why they are being given more money, more power and more capacity to get projects moving and build homes.

The package was drawn up with No 10 North, which has been holding a weekly "situation room" meeting with local leaders to ask what stands in the way of economic growth. One result was an announcement this week on the Treasury's "green book," the guidance on which projects taxpayers should fund. Under the new rules, projects that can be combined to boost growth, such as a housing scheme and a transport scheme, can be assessed together. A government white paper on "rewiring the state," due after the budget, will set out how the civil service will be reshaped as more powers move down from Whitehall.

Devolution is only part of the budget. Healey is expected to include support for poorer households hit by rising energy costs, along with modest tax rises, including on banks. He has repeatedly said he wants to give households and businesses a "breathing space" after the war in the Middle East pushed up bills. Those higher costs have also raised the interest rates on government borrowing, making it harder for him to balance the books.

He will also set out how he intends to fully fund the four-year defence investment plan announced in the final days of Keir Starmer's premiership. What he is not expected to do is say when the UK will commit to spending 3% of GDP on defence, the issue at the heart of his resignation from Starmer's cabinet. That is likely to wait for a spending review due at some point next year.