Key facts
- Surging government bond yields could force Chancellor John Healey to deliver an 'emergency Budget'.
- Healey is seeking ways to increase public investment without violating Treasury fiscal rules.
- Economists suggest exploiting flexibility in fiscal rules to allow for more and faster investment.
- A thinktank proposed public financial institutions could borrow an additional £9 billion annually within fiscal rules.
- Some experts suggest public corporations should borrow directly from markets for large projects.
Chancellor John Healey is facing immediate pressure to manage rising government bond yields and fund public investment, potentially necessitating an 'emergency Budget'. Economists are urging Healey to explore flexibility within existing fiscal rules to ramp up spending on infrastructure and housing, a key promise of his administration.
Healey's immediate challenges include covering the costs of Andy Burnham's proposed VAT cut on energy bills and addressing a £5 billion funding gap in the defense investment plan. While his predecessor, Rachel Reeves, left significant fiscal headroom against the rules, the impact of external events like the Iran war may have eroded some of this buffer. Healey could opt for tax changes, such as a bank windfall levy, or implement departmental spending cuts to manage these costs.
Economists and thinktanks, including the Resolution Foundation, suggest that public financial institutions could borrow up to an additional £9 billion annually without breaching fiscal rules. Some experts, like Thomas Aubrey from Cambridge University, argue that this approach may not be sufficient for the scale of investment implied by Burnham's growth agenda, proposing instead that public corporations be allowed to borrow directly from markets for large-scale projects in energy, water, infrastructure, and housing.