Rachel Reeves will free up as much as £50 billion to spend on roads, housing, energy and other large-scale projects under plans being drawn up by officials.
The chancellor has asked the Treasury to look at changing the government’s current borrowing rules that would hand her a windfall to fulfil Labour’s pledge to increase investment in the economy.
The current system has long been criticised by economists for discouraging governments from making long-term investments that could grow the economy.
Senior government sources said that Reeves has now asked officials to draw up options for changing the way the government measures debt, which could allow the government to offset “assets”, such the £236 billion owed in student loans, against the wider national debt — freeing up more money for investment.
Economists have calculated that if such rules had been in place at the time of the last budget it would have amounted to about £50 billion worth of additional headroom.
This would not only fund the new £7 billion national wealth fund and the £8 billion cost of Great British Energy but also free up billions of pounds to invest in other infrastructure priorities such as new rail and road links and capital investment in the NHS.
However, the move will not allow Reeves to increase day to day spending — for example by reinstating winter fuel payments — as Labour has pledged this must be met entirely from annual tax receipts.
In order to meet Labour’s plans to increase day-to-day spending Reeves is widely expected to raise taxes on capital gains and change the rules around inheritance tax.