Treasury hints at debt rule change 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 and balances 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.

The "guardrails" for government infrastructure spending form part of the government's 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 determined by government debt.

But the Treasury effectively confirmed it will loosen the long-standing self-imposed target on falling debt in order to borrow billions more to invest in a range of major projects.

Ahead of this month’s Budget and this morning’s meeting of the new British Infrastructure Taskforce, the Chief Secretary to the Treasury, Darren Jones, said the "guardrails" would allow the government to borrow for investment "more efficiently going forward".

Jones said the new guardrails were in contrast to Truss "borrowing for unfunded policies".

During her brief premiership in 2022, Truss used her "mini-Budget" to unveil £45bn in unfunded tax cuts 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."

These involve the establishment of a 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 capital spending on, 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.

It is being put in place as a guarantee that an expected significant increase in capital spending is focused on projects that have the greatest long-term returns for the UK economy.

Ministers are actively pointing to the existing Budget rule where the national debt as a proportion of the economy had to fall in five years’ time, as the reason for poor quality UK public services.

The debt rule constrained, they argue, some necessary investment and did not prevent poor quality investment in failing projects.

As that rule is loosened with a change in the debt target, this system will be the check on this sort of spending.

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 comments give the strongest indication yet that the government will change its own fiscal rules around borrowing.

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.