Chancellor John Healey is preparing proposals to increase government borrowing by up to £9 billion annually to finance infrastructure projects, housing development, and support for businesses, ahead of the upcoming Budget. The plans seek to leverage recent changes to the UK’s fiscal rules introduced by former Chancellor Rachel Reeves, allowing spending on infrastructure and equity investments in companies to be treated as assets on the government’s balance sheet. This adjustment provides greater flexibility for borrowing aimed at long-term investment without breaching fiscal targets.

Officials within the Treasury are exploring ways to channel this additional funding through public financial institutions such as the British Business Bank, the National Wealth Fund, and the National Housing Bank. The National Wealth Fund, established under the current Labour government, enables the state to take equity stakes in private enterprises linked to infrastructure projects, thereby attracting private investment alongside public financing.

The borrowing increase is intended to help realize Prime Minister Andy Burnham’s commitment to delivering “growth in every postcode.” Burnham has previously advocated for flexibility within existing fiscal rules to underpin substantial regional investment and views the expansion of public-backed funding models, similar to the Good Growth Fund he implemented as Greater Manchester mayor, as a pathway to revitalizing local economies.

Supporters argue that increased investment is necessary to stimulate the UK economy, which the Bank of England recently projected to experience near-stagnant growth with a rise in inflation toward the end of the year. Proponents also note that significant levels of public investment have been lacking since Britain’s exit from the European Investment Bank. Economists from institutes including the Resolution Foundation have endorsed the approach of using fiscal rule adjustments to support productive investments that could generate financial returns and bolster economic growth, potentially easing worries about rising borrowing costs.

However, some caution remains within the government and opposition ranks. Sir Keir Starmer and Rachel Reeves have previously expressed concerns that additional borrowing could erode confidence in bond markets and increase the government’s debt interest payments, which currently stand at about £50 million annually per £1 billion borrowed. Rising geopolitical tensions, including the ongoing conflict in Iran, have contributed to higher borrowing costs, adding pressure to public finances.

Treasury sources emphasize that while Healey sees scope to expand investment, maintaining fiscal discipline remains the top priority. The government is also conscious of the trade-offs involved in reducing the fiscal buffer, which provides a safeguard against economic shocks. Some experts note that although there is limited headroom for increased borrowing, prioritizing investments in infrastructure, housing, and research and development could support long-term growth.

Overall, the proposed borrowing plans reflect an effort by the government to balance fiscal responsibility with the need to invest in economic growth, housing delivery, and regional development within the framework of the updated fiscal rules. More detailed decisions are expected to be revealed in the Chancellor’s Budget statement.