You can’t trick the markets with extra borrowing, experts and former chancellor warn Burnham
Financial experts, the Institute for Fiscal Studies and former chancellor Phillip Hammond have warned that plans reportedly being considered by the Treasury to borrow an additional £9bn annually could raise rather than reduce the cost of government debt. Supporters say the borrowing, if directed towards infrastructure, housing and businesses under Rachel Reeves’s fiscal rules, could boost investment without alarming markets; critics argue investors would see through the approach and demand higher returns on UK debt.
The proposed change could create more than £9bn a year of spending capacity by 2031, but Jonathan Portes said this represents only 0.3% of GDP and would not be transformative. The IFS noted that borrowing is already expensive, with debt interest accounting for £1 in every £12 spent by government, and said ministers must weigh borrowing against tax rises or spending cuts. The government is also facing pressure to improve weak growth, address living-cost pressures and fund policies including business-rate reductions and capped bus fares.
- Experts warn extra borrowing could increase UK debt costs.
- Treasury plans could unlock £9bn annually by 2031.
- Critics say difficult tax and spending choices remain.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The government should embrace productive investment borrowing because it can generate returns exceeding borrowing costs, and distinguishing between investment and consumption spending is economically sound. Infrastructure, housing and business investment create future productivity gains and tax revenues that improve the fiscal position over time, making this legitimate borrowing rather than wasteful spending. Many economists support this approach as it treats government accounts more like prudent private business practice, allowing capital deployment towards genuine growth-promoting sectors whilst maintaining fiscal discipline.
The case against
The critics' concern about market perception is substantively grounded: investors may not sufficiently reward the theoretical distinction between borrowed-for-investment and borrowed-for-consumption, particularly given the UK's rising debt servicing costs already consuming significant resources. With interest payments substantial and the proposal representing only 0.3% of GDP, the modest gains may not justify the fiscal risks when the government faces pressing constraints from weak growth and urgent spending commitments. Without demonstrated market confidence in this reclassification, the Treasury risks either paying higher rates on all borrowing or finding the spending headroom illusory, making this a gamble the government cannot afford.