Budget 2026: Healey uses state-backed lenders to ramp up borrowing

Chancellor John Healey has announced plans to boost borrowing by £20.4bn over the next five years through UK state-owned lenders, including the National Wealth Fund and the British Business Bank. Healey stated that these additional funds would support 140,000 jobs in strategic sectors. The National Wealth Fund will receive approximately £15.4bn, while the British Business Bank will get £5bn.

Healey also confirmed that the two funds would focus on defence, dual-use technology, and sovereign capability, deploying up to £5bn in investment and lending over four years. Although not a direct breach of fiscal rules, the government's use of public finance bodies (Pufins) to raise funds has drawn criticism. Former Chancellor Rachel Reeves altered fiscal rules in her 2024 budget, counting financial assets against debt, allowing the government to use Pufins for more investment without increasing the debt figure.

However, this move has raised concerns from the fiscal watchdog, who warned about potential unintended consequences and the incentive for politicians to use financing mechanisms, even if they are not the most cost-effective. Healey's strategy comes amid growing pressure to meet a target of spending three percent of GDP on defense by 2030, estimated to require an additional £17.3bn in 2029-2030.