Rachel Reeves said to be considering reforms that could free up £50bn for investment in strategically important infrastructure
The government is reportedly considering changes to its fiscal rules that would free up tens of billions of pounds for investment in new energy, grid, and rail projects.
The Times reported today that Chancellor Rachel Reeves has asked Treasury officials to explore how tweaks to the fiscal rules inherited from the last government would allow the new administration to borrow more for investment in infrastructure.
The news comes after Reeves used her speech to the Labour Party Conference in Liverpool this week to hint that she was keen to identify ways to unlock increased public and private sector investment.
"Growth is the challenge and investment is the solution... It is time that the Treasury moved on from just counting the costs of investment to recognising the benefits too," she said. "So we are calling time on the ideas of the past, calling time on the days when governments stood back, left crucial sectors to fend for themselves, and turned a blind eye to where things are made and who makes them. The era of trickle down, trickle out, economics is over."
Growing numbers of economists and campaigners have called on the government to adjust the fiscal rules to make a clearer distinction between borrowing to invest in infrastructure that can boost long term productivity and growth and borrowing to cover the day-to-day expenditure.
The Times reported officials were now looking at a range of proposals that could provide the Chancellor with up to £50bn of additional fiscal headroom ahead of the Budget next month.
The paper said senior government sources had indicated civil servants were assessing proposals to offset assets such as the £236bn student loan book against the national debt. Other proposals under consideration could see investment by arms-length bodies, such as the planned GB Energy investment vehicle, accounted for separately or the introduction of new targets for 'public sector net worth' that better recognise government assets as well as liabilities.
The Guardian reported that trade union bosses have highlighted to the Treasury how other state-backed energy companies across Europe are routinely permitted to borrow to invest, with the debt not recognised in the government's accounts. German energy company Stadtwerke München and state-owned development bank KfW, Danish energy giant Ørsted, Sweden's Vattenfall, and Norway's Statkraft and Equinor all operate in this way.
Supporters of reforms to the fiscal rules argue other countries account for public debt differently, providing their Treasuries with more freedom to invest in infrastructure that delivers long term benefits.
The government insisted no decision had yet been made. "The budget will be built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto," a Treasury spokesperson said. "These includes moving the current budget into balance, so that day-to-day costs are met by revenues, and debt falling as a share of the economy by the fifth year."
But any move to allow more borrowing for investment in strategic infrastructure would be warmly welcomed by campaigners as a major boon to the green economy.
The changes could provide the government with the freedom to assign more public funding to its imminent Industrial Strategy, which is expected to include support for new green steel, hydrogen, carbon capture, and clean tech factory projects, as well as new grid, rail, and road projects.
Campaigners have also long argued the Treasury should designate housing as an infrastructure priority, which could allow for more public investment in national energy efficiency upgrade programmes.
The reports follow a series of speeches from senior Ministers at the Labour Conference setting out plans to ramp up investment in new green infrastructure, including clean energy projects, transmission lines, and water infrastructure.
In his keynote speech, Prime Minister Keir Starmer promised that the new government would harness clean energy "for national renewal", as he confirmed the new GB Energy venture would be headquartered in Aberdeen and promised to push through planning reforms to allow new renewables and pylon projects to be delivered.
The government also confirmed yesterday that former World Bank vice president Rachel Kyte has been appointed as the UK's new climate envoy.
Kyte is Professor of Practice in Climate Policy at the Blavatnik School of Government at the University of Oxford and dean emerita of the Fletcher School of Law and Diplomacy at Tufts University. She previously worked as Special Representative of the UN Secretary-General and CEO of Sustainable Energy for All, vice president for sustainable development at the World Bank.
She will now report into Foreign Secretary David Lammy and Energy Security and Net Zero Secretary Ed Miliband and is set to play a key role in the UK's preparations for the COP29 Climate Summit in Baku.
"We cannot address the urgency of the climate and nature crisis without coordinated global action," said Lammy. "This government is committed to boosting the UK's climate leadership. Rachel Kyte will bring invaluable expertise and experience as we work together with partners to drive the energy transition, support those most vulnerable to the worst impacts of the climate crisis and meet the objectives of the Paris Agreement."
Kyte said she was excited to take up the new role. "This government is committed to reconnecting the UK to the world with climate action as a priority," she said. "And the world is being shaped politically and economically by climate change. This provides an opportunity to use international action to help deliver on the UK's energy mission. And it provides challenges, not least in mobilising the financing to protect people and drive greener growth. There is no time like now for the UK to help drive action."
You can now sign up to attend the fifth annual Net Zero Festival, which will be hosted by BusinessGreen on October 22-23 at the Business Design Centre in London.
