Healey urged to be bold on borrowing in first test of Burnham’s growth pledge

John Healey, the new chancellor, is faced with the challenge of boosting public investment while adhering to fiscal rules that his predecessor, Rachel Reeves, has creatively stretched to accommodate significant borrowing. Reeves introduced a new definition for debt, known as public sector net financial liabilities (PSNFL), which allows the government to borrow for financial assets without it counting against the Treasury's borrowing target.

This move enabled him to promise a substantial increase in public borrowing. However, experts argue that the Treasury could go even further, with one paper suggesting an additional £9bn a year could be borrowed without breaching fiscal rules. The Starmer government has already expanded these bodies, but there may still be scope for more.

Lord Jim O'Neill, a potential Burnham adviser, suggests borrowing for infrastructure projects within the rules, possibly through creating a new independent agency to assess which projects should be supported. Helen Miller, director of the Institute for Fiscal Studies, warns against getting too fixated on fiscal rules, emphasizing that borrowing will still increase costs and debt.

Thomas Aubrey from Cambridge University argues for a more creative approach, suggesting that public corporations should be allowed to borrow directly from markets. This would provide significant scope for long-term investment, even though it would come at a higher interest rate than government borrowing.