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.