Debt rule: Treasury to change it to fund major projects

The Treasury has given its clearest indication yet it will change its self-imposed debt rule in order to borrow billions to fund a new infrastructure projects.

Independent checks on spending for major building work will be introduced to allow the government to borrow for investment “more efficiently”, the Treasury Chief Secretary, Darren Jones, has said.

He claimed that the safeguards on spending will aim to avoid a repeat of the financial turmoil which followed the 2022 mini-Budget under former Prime Minister Liz Truss.

New watchdogs will oversee a 10-year strategy for a pipeline of major projects, on areas such as buildings, roads and rail.

What the government is calling the “guardrails” for infrastructure spending will form part of its aim to encourage the private sector to invest in British projects.

Under this plan, “expert-led checks and balances” will determine the quality of government borrowing for investment.

At the moment, the amount of money the government can borrow for investment is restrained by the amount of debt it has.

There is a self-imposed rule that debt – the total amount the government owes – must fall in five years’ time.

Many rich countries have similar rules, to keep government finances under control and maintain credibility with financial markets and taxpayers.

But the Treasury has effectively confirmed it will loosen the target in order to borrow billions more to invest in a range of major projects.

Ahead of the Budget on 30 October, Jones said the “guardrails” on spending would allow the government to borrow for investment “more efficiently going forward”.

He said these guardrails were in contrast to the Truss government’s “borrowing for unfunded policies”.

During her brief premiership in 2022, Truss used her “mini-Budget” to unveil £45bn in unfunded tax cuts in an attempt to boost economic growth.

Jones said: “We need expert, institutional and some independent guardrails to make sure everybody has confidence in the way that the government is spending taxpayer money.

“What I’m confirming today is we put those in place for capital investment and infrastructure delivery.”

The changes will include a new National Infrastructure and Service Transformation Authority that will oversee a 10-year strategy for a pipeline of major projects, aligned with a series of Spending Reviews, and long-term budgets for investment in, for example, buildings, roads and rail.

The National Audit Office and a new Office for Value for Money will also offer ongoing appraisals of “mega projects” such as major train lines.

The government said the moves would “depoliticise” infrastructure decisions and offer “independent checks and balances” against government, similar to the Office for Budget Responsibility.

In the government’s view this system will provide an independent quality control on major projects spending, that has been beset with delay and overspend, and proved more expensive in the UK than other major economies.

Ministers argue that the current debt rule has led to poor quality UK public services by constraining some necessary investment, and has also allowed spending on failing projects.

A Cabinet minister told the BBC: “When we do invest in projects we will make sure they deliver genuine value for money, they bring a return on investment and they deliver for communities.

“The Conservatives’ wasted billions of taxpayers’ pounds on ministerial pet projects that never delivered and were about trying to buy votes. The Budget will be about changing that.”

The announcement comes as the government faces scrutiny over how it will choose to spend money in the Budget at the end of October.

On Wednesday, ministers wrote to the prime minister to call for an eleventh-hour rethink of the spending review which they worry would see their own department’s budgets slashed.

Those reportedly concerned included Deputy Prime Minister Angela Rayner, Justice Secretary Shabana Mahmood, and Transport Secretary Louise Haigh.

Jones’ comments come alongside the government’s introduction of a “taskforce” for infrastructure spending – a group of private sector bosses including from HSBC, Lloyds, and M&G – who will advise government on where to invest for infrastructure.

“Increasing investment in infrastructure is a vital part of delivering on our number one mission to grow the economy and create jobs,” Chancellor Rachel Reeves said.