UK budget set to hand English mayors new borrowing powers, growth funding

The next week’s budget will hand England’s combined authorities a new set of tools that could finally give local leaders the money and the means they need to drive growth in their own areas. A £285 million seed fund, a £1.5 billion borrowing facility and a share of income tax and business rates are all on the table, along with a new levy on overnight stays that would let mayors tap the visitor economy.

New powers and funding for England’s mayors

In a move that the Labour government has billed as “the biggest transfer of power from Westminster in a generation”, Chancellor John Healey will unveil a package that removes the need for mayors to go “cap in hand” to Whitehall for every investment. The first element is the Good Growth scheme, which will see an initial £285 million released next year to fund housing, high‑street regeneration and transport projects that have previously been subject to a patchwork of bidding pots.

Media additions

"I'm calling time on local leaders going cap in hand to Westminster. That is no way to run a country,"

Prime Minister Andy Burnham, via The Guardian

The scheme is designed to give strategic authorities the ability to spend on projects that match their own priorities, without a central‑government approval step. In addition, strategic authorities will receive £150 million next year to build the staff and expertise required to manage the larger budgets that will come with the new powers.

From 2028, mayors will be able to negotiate a £1.5 billion borrowing facility that would let them tap capital markets to fund big projects. The borrowing power is intended to replace the short‑term, one‑year funding settlements that have historically constrained large‑scale investment. The facility will be designed in partnership with the Treasury, giving mayors a long‑term source of finance that is not tied to the annual budget cycle.

Income tax and business rates share

Under the same package, city‑region leaders will receive a share of the income tax collected in their areas from 2028. The exact proportion is still being negotiated, but the plan is to give mayors a slice of the 20p basic rate of income tax that is currently routed to central government. The same mechanism will apply to business rates, with a new allocation coming into force from 2027. The revenue will replace, rather than add to, the existing grant stream, meaning that the total cash available to a mayor will shift from a central handout to a local source.

Opposition parties have warned that the move could create a “postcode lottery” if weaker economies are left behind. The Liberal Democrats have said the plan risks “creating a two‑tier system” that would leave rural and less affluent areas short‑chased.

Visitor levy and other revenue tools

In a separate but related announcement, the government will allow mayors to introduce a levy on overnight stays. The charge would apply to accommodation providers, including hotels, holiday lets and bed and breakfasts, and would be set by each mayor in consultation with local stakeholders. The revenue would then be earmarked for local projects, giving cities the same ability to raise a visitor tax as destinations such as New York, Paris or Milan. The consultation on the levy will run for 12 weeks and close on 18 February.

Steve Reed, Secretary of State for Housing, Communities and Local Government, said that the levy would “help mayors invest in local growth” and would give regions the same fiscal tools as the world’s leading tourist destinations.

Expert and political reaction

Institute for Public Policy Research (IPPR) has described the package as “the most significant shift in how England is funded in a generation”. The think‑tank argues that the new powers will allow mayors to use local knowledge to target investment in transport, housing and skills, and that the borrowing facility will unlock projects that have been stalled by short‑term funding cycles.

However, some critics caution that the new powers could deepen regional inequalities if not matched by a robust equalisation system. The BBC reported that Treasury officials were still working out how to ensure that areas with lower tax bases would receive adequate support. The opposition has called for a “postcode lottery” warning that wealthier regions could out‑compete poorer ones.

Labour mayors across the country have welcomed the move. Claire Ward, chair of the UK Mayors Network, said that the powers and resources would “help us to turn our ambitious plans into reality and deliver real, lasting change for our communities.” London Mayor Sadiq Khan added that the ability to keep a share of income tax could unlock transformational infrastructure projects such as the West London Orbital route and the extension of the Bakerloo line.

Financial summary

Timeline and next steps

• Wednesday 24 October – Budget announced, with a pledge to hand mayors new powers and funding.
• Autumn 2026 – Chancellor John Healey to detail the exact share of income tax and business rates in the full budget.
• February 2026 – Consultation on the overnight stay levy closes.
• 2028 – Mayors to begin borrowing from the newly designed £1.5 billion facility.

The package signals a decisive shift in how England’s growth agenda will be financed and executed. The real test will come when the Treasury finalises the tax shares and the borrowing framework is rolled out. Mayors, opposition parties and the public will be watching closely to see whether the new powers translate into tangible investment, or whether the concerns about a two‑tier system come to pass. The next budget will be the first opportunity for the government to confirm the details and to demonstrate that the promise of “devolution” can be delivered in a way that benefits all regions, not just the most affluent. For now, the focus will be on the implementation of the Good Growth scheme, the design of the borrowing facility and the rollout of the visitor levy, all of which will shape the trajectory of regional development over the coming decade.