Rachel Reeves says she WILL loosen debt rule in Budget to splurge as much as £50bn on infrastructure however vows ‘guardrails’ to steadiness books as markets get the jitters

Rachel Reeves today confirmed she will loosen debt rules at the Budget to splurge billions more on infrastructure. 

In interviews as she attended IMF meetings in Washington DC, the Chancellor said the government will be shifting to another measure that recognises ‘assets’. 

The target to have debt falling over time is expected to be based on liabilities – allow around £50billion more borrowing for projects such as running HS2 to Euston.

She insisted there will be ‘guardrails’, with signs that the commitments to balance day-to-day spending could be made tougher.

An eye-watering £35billion of tax hikes are believed to be in the plans.

However, critics warned that Ms Reeves is ‘fiddling’ the figures – while nervous markets continue to crank up the costs of servicing government debt. 

Ms Reeves sounded a notably more upbeat tone in a slick video with less than a week to go until the crucial package. 

Speaking over footage including her at work and smiling nurses, Ms Reeves insisted the government was going to ‘fix the foundations’ of the country and she had ‘never been more optimistic’. 

Meanwhile, Keir Starmer had made clear the Budget revenue-raising will go beyond the claimed £22billion ‘black hole’ left by the Tories.

The PM said next week’s fiscal package would ‘rebuild’ services and the economy.

But he tried to cool business fears about an expected £35billion of tax rises, insisting investors do not need to be ‘worried’.

Writing in the Financial Times, Ms Reeves confirmed her fiscal rules would ‘make space for increased investment in the fabric of our economy’ amid widespread expectation she will change the way debt is measured.

The Chancellor said her ‘investment rule’ would ‘get debt falling as a proportion of our economy’.

‘That will make space for increased investment in the fabric of our economy, and ensure we don’t see the falls in public sector investment that were planned under the last government.’

She is expected to change the measure of debt to one which includes a wider range of state assets and liabilities, giving her more room for manoeuvre in the October 30 Budget.

The Chancellor told Sky News: ‘We will measure debt differently but of course we’ll put guardrails in place to ensure that every pound of taxpayers’ money spent is spent wisely, and we’ll involve the National Audit Office and the Office for Budget Responsibility in that.’

She refused to say whether she would exempt the public sector from plans to raise employer national insurance on pension contributions.

Asked whether she would leave the private sector carrying the burden, she said: ‘I was clear in the statement I made to the House of Commons in July that there will be difficult decisions in this Budget around spending, welfare and taxation.

‘But the precise details I will set out to the House of Commons next week.’

She added: ‘The worst thing that a chancellor could do in the Budget next week is not put Britain’s public finances and Britain’s public services on a sustainable path. I’m determined to do that.’

Gilt yields continued to nudge up this morning on concerns about the debt burden, although they later drifted down again.

Government bonds in many countries have been under pressure amid speculation on interest rate movements and sustainability of economic growth.

Ms Reeves is planning a huge move to impose national insurance on employers’ contributions to retirement funds – despite complaints it is a ‘straightforward breach’ of Labour‘s manifesto.

However, the burden will seemingly be borne entirely by the private sector, with Ms Reeves pumping an extra £5billion into NHS and other budgets to avoid cuts to headcount or wages.

Hundreds of thousands could be dragged deeper into the tax system by extending the freeze on thresholds again. And inheritance tax, pension pots and capital gains could also be milked to bolster the government’s books.  

The rumoured £35billion of tax increases in the package could leave Ms Reeves with two unwanted slices of history.

Official figures suggest it would be the most tax raised at a Budget since 1993, in the aftermath of the Black Wednesday Sterling crisis.

And Ms Reeves could put the country on track to pay the highest tax as a proportion of GDP since comparable records began nearly eight decades ago.

However, Sir Keir insisted there would be ‘no reason’ for entrepreneurs to leave the country.

He told reporters: ‘My evidence that what we are saying is attractive to investors is last Monday’s investment summit that was hugely successful.

‘All the feedback back to us has been that it was very well received by a significant number of global investors.’

Sir Keir insisted people were investing in Britain ‘because of what this government is bringing to the table’.

Downing Street later said investors ‘shouldn’t be worried about this Budget’, despite some rushing to sell assets due to expected hikes in capital gains tax.

Labour’s first Budget for 15 years will aim to ‘fix the foundations’ and ‘rebuild’ the country, Sir Keir said, as he insisted that the ‘£22billion black hole’ is ‘for real’ and not ‘performative’.

‘It’s for real and we’ve got to deal with it and I don’t think we are wrong to be honest about that and we have also been clear this is a budget about rebuilding the country and therefore it will also spell out the direction of travel for the country and what we want to do with it.

‘We’ve got to get both bits of that right.’

The PM said he was ‘not prepared’ to put off the pain for another year, telling reporters that while there would be more budgets to come, he wanted to ‘tackle the inheritance in this Budget’.

‘I’m not prepared to walk past it. I’m not prepared to put it off and that is a signal of the way I want to do business which is not to pretend our problems aren’t there, it’s to actually roll up our sleeves and deal with it.’