New Chancellor John Healey is currently seeking methods to increase public investment while adhering to the Treasury's fiscal rules, with his first budget scheduled in 12 weeks. Some economists are encouraging him to adopt a bold strategy.
Healey faces immediate challenges including funding Andy Burnham's VAT cut on energy bills and addressing a £5bn gap in the defence investment plan. These costs could potentially be met through tax adjustments, such as a bank windfall levy, or by directing Whitehall departments to reduce spending elsewhere.
Prime Minister Andy Burnham has expressed a desire for a significant increase in long-term investment in infrastructure and housing. One potential funding method involves utilising flexibility within existing fiscal rules, which now allow additional borrowing for acquiring financial assets without counting against the Treasury's target.
The Resolution Foundation thinktank suggests that public financial institutions could borrow up to an additional £9bn annually without breaching fiscal rules. Alternatively, some experts, including Thomas Aubrey of Cambridge University, propose allowing public corporations to borrow directly from markets for large-scale projects, arguing this could significantly increase long-term investment scope.