The UK government is planning to loosen its debt rules to borrow billions for major building projects, such as roads, rail, and public services. This change aims to encourage private companies to invest in these projects, while independent checks will ensure that money is spent wisely.

Why Change the Rules?

The government has a self-imposed rule that the total debt (money it owes) must go down in five years. This rule is common in rich countries to keep government spending in check and maintain trust with financial markets and taxpayers.

However, the government has realized that this rule has made it hard to invest in important infrastructure, like hospitals, schools, and transport networks. These projects need a lot of money upfront, but the current debt rule limits how much the government can borrow for such investments.

So, to get around this issue, the Treasury (the department that manages the government’s money) is planning to loosen this rule. The idea is to allow more borrowing, but with expert-led checks to ensure the money is spent effectively.

Guardrails for Smart Spending

Darren Jones, the Treasury’s Chief Secretary, announced that the government will introduce “guardrails” for how money is borrowed and spent on these projects. These guardrails are like safety measures that will help prevent financial problems like the one caused by the 2022 mini-budget under former Prime Minister Liz Truss.

During Truss’s brief time as Prime Minister, she announced £45 billion in tax cuts without finding a way to pay for them. This led to financial turmoil, and the government wants to avoid repeating that mistake. The new guardrails will focus on making sure borrowing is only done for projects that will benefit the country and bring value for money.

To achieve this, new watchdogs will be created to keep an eye on spending. One of these watchdogs is the National Infrastructure and Service Transformation Authority, which will oversee a 10-year strategy for major projects like building new roads and railways.

There will also be a new Office for Value for Money, which will assess whether these projects are delivering the benefits promised and are worth the investment.

A Smarter Way to Borrow

At the moment, the amount the government can borrow for investment is limited because of its total debt. Many experts and ministers argue that this restriction has caused poor quality services in the UK, as it prevents necessary investment in infrastructure.

By loosening the debt rule, the government hopes to borrow more money to invest in things that will improve public services and boost the economy. Darren Jones said that the new approach will allow the government to borrow for investment “more efficiently,” meaning they’ll only borrow when it makes sense and can improve the country.

He explained that the guardrails will prevent the kind of “borrowing for unfunded policies” seen under Truss. Instead, the focus will be on long-term investments that will help the country grow economically, like new hospitals, schools, and transport networks.

Independent Oversight

To make sure everything stays on track, independent organizations like the National Audit Office will check how the money is being spent. They will look at “mega projects,” such as big rail lines and other major infrastructure, to ensure they’re completed on time and within budget.

The government hopes that by taking politics out of infrastructure decisions, they can make better choices about which projects to fund. This independent oversight will be similar to how the Office for Budget Responsibility (OBR) checks the government’s budget and financial decisions.

Jones said, “We need expert, institutional, and some independent guardrails to make sure everybody has confidence in the way that the government is spending taxpayer money.”

Avoiding Past Mistakes

In the past, there have been many instances where the UK government has invested in projects that didn’t deliver the expected benefits. These failed projects wasted billions of pounds and left the public frustrated. By introducing independent checks and making sure projects are thoroughly reviewed before borrowing, the government aims to avoid such mistakes in the future.

A Cabinet minister commented, “When we do invest in projects, we will make sure they deliver genuine value for money, they bring a return on investment, and they deliver for communities.”

The minister also pointed out that previous governments, particularly under the Conservative Party, had wasted money on “pet projects” that were more about winning votes than improving the country. The new approach will focus on ensuring that every penny spent brings real benefits to the public.

Attracting Private Investment

Another key part of the government’s plan is to attract private investment in these major projects. A new taskforce of private sector leaders, including bosses from big companies like HSBC and Lloyds, will advise the government on where to invest.

This taskforce will play an important role in helping the government choose projects that will bring the most benefit to the country. The government believes that working closely with private companies will boost the UK’s economy and create new opportunities for growth.