Chancellor’s £20bn to invest would cost less than £1 billion in headroom: IPPR analysis

£20bn of total borrowing over five years for investment on AI, defence and green energy is expected in tomorrow's budget. This would cost less than £1bn in debt interest and running costs in 2029-30, according to new IPPR analysis. 

The government will deliver this investment through the National Wealth Fund (NWF) and British Business Bank (BBB). Yet this should have a minimal impact on the fiscal rules, IPPR researchers say, since the borrowing supports investment through equity and loans, which hold value. 

“Creative solutions” to allow for public investment in the UK economy like these are only needed because the current fiscal framework is “not fit for purpose”, IPPR researchers argue. They previously argued that fiscal rules contribute to a narrow concept of what it means to be fiscally sustainable in debates over the UK’s public finances.  

The researchers call for a new fiscal framework as part of the government’s 10-year plan. This should be able to assess the long-term fiscal value of today’s policy decisions, including the benefits of preventive health measures, industrial policy investments and climate resilience programmes. They recommend that Chancellors should be held to account on fiscal plans using the debt servicing ratio, supported by a dashboard of indicators. 

William Ellis, senior economist at IPPR, said: 

“Investing in green energy and harnessing the impact of AI on the economy are the right priorities for the Chancellor at this Budget, and our analysis shows he can do this comfortably within the fiscal rules. 

"But the government shouldn’t have to resort to creative solutions to fund investment in the UK’s future growth and resilience. It should meet the current fiscal rules but carefully review the wider fiscal framework, which is not fit for purpose, as part of its 10-year plan.” 

ENDS 

IPPR experts, including William Ellis and Carsten Jung, are available for interview. 

CONTACT 

Tom Jeffery, media consultant: 07772 941254 [email protected] 

Rosie Okumbe, senior digital and media officer: 07825 185421 [email protected]  

David Wastell, director of news and communications: 07921 403651 [email protected]  

NOTES TO EDITORS  

1. IPPR researchers calculate that £20 billion of investment through the National Wealth Fund (NWF) and British Business Bank (BBB) over five years will cost the exchequer less that £1 billion in debt interest and running costs in 2029-2030. Source: IPPR calculations using OBR debt interest ready reckoners and accounting treatment for Public Financial Institutions.
2. William Ellis and Carsten Jung’s previous IPPR paper, Beyond headroom: Why we need a better fiscal framework to fix the UK’s long term problems, sets out why the current framework is focused too strongly on narrow medium-term targets, and not enough on longer-term fiscal risks and opportunities.  
   See https://www.ippr.org/articles/beyond-headroom