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UK chancellor faces early test on borrowing to fund public investment

The government must cover costs tied to Andy Burnham’s energy VAT cut and a £5bn defence plan gap, while also pursuing a longer-term step up in infrastructure and housing investment.

Reported · Written up by our desk · Europe

The UK chancellor, John Healey, is weighing how to ramp up public investment within Treasury fiscal rules, with about 12 weeks remaining until his first budget, according to the Guardian Business.

The near-term funding challenge includes paying for Andy Burnham’s VAT cut on energy bills and closing a £5bn funding gap in the defence investment plan left by Rachel Reeves, which contributed to Healey’s resignation earlier this year, the outlet reports.

Healey could attempt to meet these costs through tax changes, including a bank windfall levy that is back on the agenda, or by directing Whitehall departments to cut spending, the Guardian Economics says.

In parallel, Burnham has pressed for a step-change in long-term spending on infrastructure and housing, and one proposed approach involves using flexibility in existing fiscal rules, after Reeves redefined debt so that extra borrowing does not count against the Treasury’s target when used to acquire a financial asset, such as a stake in a company or a loan.

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