The rule changes would pave the way for the Chancellor to invest billions of pounds into the economy (Image: Getty)
has hinted that she will loosen fiscal rules over government borrowing, giving her more flexibility on how much she can spend and borrow – but economists have sounded the alarm over higher .
The radical changes, expected to be unveiled at the Autumn Budget, would pave the way for the Chancellor to invest billions of pounds more into the UK . It is thought that Ms Reeves will use the greater investment powers to pour money into infrastructure projects like hospitals and prisons.
The rule changes, backed by the OECD think tank, would see Ms Reeves change the definition of debt from the one used by the previous Government, and remove certain projects – that could boost the economy or accelerate green growth – off the debt books.
The Chancellor again suggested a change was coming in the Budget , telling colleagues “it is time that the Treasury moved on from just counting the costs of investments to recognising the benefits too”.
The higher interest rates would have a domino effect on mortgage rates (Image: Getty)
However, there are worries over how much Ms Reeves will look to borrow, with government debt running at 100 percent of GDP, and a total debt pile of £2.5trillion.
Several economists have also issued warnings about the plans. A former member of the Monetary Policy Committee has warned that the borrowing surge will trigger
Speaking to , Martin Weale said: “I would expect more borrowing to mean higher , but that said, I doubt that the treatment of the Bank of England losses is very material.”
Edward Jones, a professor of economics at Bangor University, said: “The UK Government will need to be cautious about how much extra borrowing capacity it uses for investment given the need for it to maintain the confidence of financial markets. Jitters in the markets could see an impact on .”
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These economic warnings echo those from former Chancellor , who tweeted on Thursday: “My advice from HMT officials was always very clear on this: more borrowing means stay higher for longer.”
Treasury officials have warned the government that any increase in borrowing is likely to increase inflation and , according to .
A Treasury source said: “I think officials will be a lot more comfortable with the Bank of England change than an open-ended allowance for the government to borrow as much as it likes to fund capital spending. Once you have carved out GB Energy, why not make it much bigger and load it up with debt?”
A Treasury analysis commissioned by the incumbent Conservatives last year suggested an increase in borrowing by £25billion could push up the base rate by as much as 1.25 percentage points.
Jeremy Hunt has warned his successor against more borrowing (Image: Getty)
The higher would then have a domino effect on rates, as brokers have said staying higher than expected for longer could put the “brakes” on recent cuts to home loan prices.
This would be a nightmare for the 1.8 million households expected to remortgage in 2025.
Asked about a potential change to the fiscal rules last week, Prime Minister Sir said: “There are different theories on economic growth. I’ve always thought it’s important to borrow to invest. That was part of what we said before the election. That’s not a new principle. But we have got to make sure we have strong fiscal rules in place.”
A Treasury spokesman said: “The Budget will be built on the rock of economic stability. The Chancellor has repeatedly said that she will protect working people and not play fast and loose with the public finances.”
The spokesman insisted previous Treasury analysis carried out under the Conservatives “is complicated and can change significantly over time”.