Healey Urged to Be Bold on Borrowing for Growth 2026

New chancellor John Healey is being urged to be bold on borrowing to fuel economic growth, as he prepares his first budget with just 12 weeks to go. The pressure comes as part of Andy Burnham's growth pledge, and economists argue that exploiting fiscal rule flexibility could unlock much-needed infrastructure and housing investment.

Healey's First Budget: Key Challenges

Healey faces immediate pressures, including funding a VAT cut on energy bills promised by Burnham and filling a £5bn gap in the defence investment plan left by predecessor Rachel Reeves. These costs could be met through tax changes, such as a bank windfall levy, or by cutting departmental spending elsewhere.

Fortunately, Reeves bequeathed significant headroom against fiscal rules—£24bn at the spring forecast—which is unlikely to be fully eroded by the impact of the Iran war. This gives Healey some breathing room, but the long-term challenge remains: delivering a step-change in investment to meet the promise of growth in every postcode.

Exploiting Fiscal Rule Flexibility

Burnham has indicated there is "scope for more and more rapid investment," and the new definition of debt—public sector net financial liabilities (PSNFL)—allows extra borrowing if used to acquire financial assets like company stakes or loans. This historic change could be pushed further, as argued in a recent paper by the Resolution Foundation.

Economists suggest that the Treasury could adopt a more aggressive interpretation of PSNFL to fund productive investments without breaking the rules. This would be a bold move, but one that could significantly boost long-term growth prospects.

Comparison of Fiscal Approaches

Key Takeaways for the UK Economy

• Healey must balance short-term spending needs with long-term investment goals.
• Fiscal rule flexibility under PSNFL offers a path to higher public borrowing.
• A bold approach could accelerate infrastructure and housing projects.
• Tax changes remain an option but carry economic risks.
• The first budget will be a critical test of Burnham's growth pledge.

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