Healey urged to be bold on borrowing in first test of Burnham’s growth pledge
New chancellor John Healey is exploring how to increase public investment ahead of his first budget in 12 weeks, without breaching Treasury fiscal rules, as he faces pressure from economists to be bold. His immediate priorities are short-term spending pressures, including funding Andy Burnham's VAT cut on energy bills and plugging a £5bn gap in the defence investment plan left by predecessor Rachel Reeves, whose resignation contributed to Healey's departure earlier. Longer term, Burnham wants a step-change in infrastructure and housing investment to deliver growth in every part of the country, making this an early test of that pledge.
Reeves left Healey around £24bn of fiscal "headroom" and had redefined debt rules (public sector net financial liabilities, or "PSNFL") so borrowing to acquire financial assets doesn't count against targets. The Resolution Foundation argues public financial institutions such as the National Wealth Fund and National Housing Bank could borrow up to £9bn more annually within existing rules, while Lord Jim O'Neill has floated a new independent agency to vet infrastructure projects. However, the IFS's Helen Miller cautions against fixating on rule flexibility, arguing the real question is whether the investment itself is worthwhile, since any extra borrowing still raises costs and debt.
- Healey seeks more investment headroom ahead of his first budget in 12 weeks
- Faces £5bn defence funding gap and Burnham's energy VAT cut costs
- Experts split: exploit fiscal rule flexibility or focus on investment quality
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Advocates of bolder borrowing argue that the current fiscal rules draw an unhelpful equivalence between productive investment and everyday spending, and that using the flexibility already built into the rules – or creative financing routes such as market borrowing – allows the Treasury to fund infrastructure, housing and transport projects capable of lifting long-term growth. They contend that Britain's growth ambitions, including pledges like Burnham's, have been held back for years by excessive caution, and that with borrowing costs for investment offset by future returns, hesitancy now risks locking in stagnation and higher costs down the line.
The case against
Those urging caution argue that fiscal rules exist precisely to protect the government's credibility with lenders and to keep the cost of servicing already-elevated national debt under control, and that loosening the purse strings so soon after previous market turbulence risks spooking bond investors and pushing up gilt yields for households and businesses alike. They contend that disciplined, predictable public finances are themselves a precondition for sustainable growth, and that abandoning or stretching the rules to accommodate ambitious spending pledges could undermine the very investor confidence that long-term investment depends upon.