STORY
The Treasury is examining whether the Government can support billions of pounds of additional investment while remaining within its existing fiscal rules. Chancellor John Healey has said there is “scope for more and more rapid investment”, although the Treasury has not announced a new borrowing total and has said that formal decisions will be made through the normal fiscal process.
The review was first reported by The Times, which said officials were looking at flexibility within the rules to raise billions of pounds in extra borrowing for infrastructure, housing and business support. A Treasury source said Healey was considering “a range of options” ahead of his first Budget, but that maintaining fiscal discipline remained his “No 1 priority”.
The rules separate day-to-day spending from investment. The current budget rule requires Government income to cover routine expenditure by the end of the 2029–30 financial year. A second rule requires public sector net financial liabilities, known as PSNFL, to be falling as a share of the economy compared with the previous year at that point.
PSNFL is broader than the more familiar measure of public sector net debt because it also counts additional financial assets and liabilities held by the public sector. This matters when Government borrowing is used for loans or equity investments that create an asset in return. The framework can therefore allow more room for investment through bodies such as public banks or investment funds than a rule based solely on conventional debt.
Any extra headroom identified could be channelled through agencies including the British Business Bank, the National Wealth Fund and the National Housing Bank, according to The Times. Some of the funding could also be shared with regional mayors, a route that would sit alongside Prime Minister Andy Burnham’s wider plans to devolve power away from central government. Burnham said last month he would use “any flexibility” available within the fiscal rules while maintaining budget discipline.
The think tank Resolution Foundation has estimated that scaling up the National Wealth Fund alone could unlock an extra £9 billion a year for investment by 2031.
The change does not make borrowing cost-free. The Government must still pay interest, the investments must be managed properly and the Office for Budget Responsibility will assess whether the rules are met. At the end of June 2026, public sector net debt stood at 94.9% of gross domestic product, while PSNFL was 84.5% of GDP, reflecting the additional financial assets included in the wider measure. The Government borrowed £128 billion in the 2025–26 financial year, and gilt yields remain the highest among G7 economies, meaning investors are watching closely for signs of increased borrowing.
The question of headroom comes against a wider backdrop of pressure on the public finances. The National Institute of Economic and Social Research has estimated a £24 billion shortfall in the Government’s medium-term spending plans, warning that persistent inflation is eroding the real value of budgets for public services. That has fuelled speculation that tax rises, as well as any new investment framework, could feature in Healey’s first Budget, which he has confirmed will be delivered on Wednesday 28 October.
A Treasury spokesperson said Healey remained focused on boosting business and helping with the cost of living, and that any decisions on borrowing would be set out through the normal Budget process.
LINKS
HM Treasury – https://www.gov.uk/government/organisations/hm-treasury — the department at the centre of the story.
Office for Budget Responsibility – https://www.gov.uk/government/organisations/office-for-budget-responsibility — the independent body that assesses whether the fiscal rules are being met.
ONS, Public sector finances bulletin – https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/latest — the source of the PSND and PSNFL figures.
Bank of England – https://www.bankofengland.co.uk — relevant for context on gilt yields and monetary policy alongside the fiscal story.
UK Debt Management Office – https://www.dmo.gov.uk/ — manages gilt issuance, so useful background on the borrowing itself.
Institute for Government, explainer on the current fiscal rules – https://www.instituteforgovernment.org.uk/explainer/current-fiscal-rules — a clear, independent breakdown of how the two rules work,