Treasury installs ‘guard rails’ to avoid Liz Truss-style budget meltdown

Rachel Reeves, the chancellor, is taking action to ensure her budget plan for a multibillion-pound increase in government borrowing to fund infrastructure projects avoids a Liz Truss-style meltdown in financial markets.

Ahead of her tax and spending event on 30 October, the chancellor is convening on Friday the first meeting of a taskforce of leading City figures to advise on infrastructure projects. The government will also launch a watchdog to oversee public works and ensure value for money for the taxpayer.

It is understood Reeves is preparing to announce changes in the budget to the Treasury’s self-imposed fiscal rules to pave the way for billions of pounds in additional borrowing to finance major public works including roads, railways, schools and hospitals.

Darren Jones, the chief secretary to the Treasury, told journalists on Thursday it was important to have “guardrails” to ensure major public works offered value for money, after years of overspending and delays in big projects.

City investors have warned that a badly managed increase in government borrowing risked prompting a “buyers’ strike” in the market for UK debt, threatening a repeat of the turmoil witnessed after Truss’s 2022 disastrous mini-budget.

Sources close to the Treasury said the government understood that if it was going to add to borrowing, it needed to be clear with the public, parliament and the markets that what it was doing was sensible.

Financial markets expect the chancellor to change her definition of the national debt to unlock up to £57bn of headroom against her self-imposed fiscal rules. Analysts at Goldman Sachs expect she could use the space to increase borrowing by £10bn-£20bn a year.

The chancellor on Friday will convene the first meeting of the British Infrastructure Taskforce, a new group involving some of the UK’s biggest City institutions – including HSBC, Lloyd’s and M&G – to advise on its plans.

It follows an announcement last week on the creation of the National Infrastructure and Service Transformation Authority (Nista), a new arm’s-length body merging two existing organisations that will oversee strategy and delivery of major works.

Speaking to journalists ahead of Friday’s announcement, Jones contrasted Labour’s creation of the new institutions to the approach taken by Truss, who made £45bn of unfunded tax promises while sidelining the Office for Budget Responsibility.

“One of the problems that Liz Truss had was that she disregarded independent checks and balances and expertise, borrowed loads of money for unfunded policies, and we know everything that happened next,” he said.

Jones said “guardrails” were important regardless of considerations in financial markets, to show taxpayers that public money was being well spent. “The reason I refer to the Liz Truss episode is because that’s an example of when you don’t have them,” he added.

“You need expert, institutional and some independent guardrails to make sure that everybody has confidence in the way that government is spending taxpayer money. What I’m conferring today is we put those in place for capital investment and infrastructure delivery.”

Jones indicated there would also be a wider role for the National Audit Office and highlighted plans to create an Office for Value for Money.

The Treasury minister, who is also leading a multi-year spending review due to conclude next spring, said the government would announce a 10-year infrastructure plan which would include details of key “economic infrastructure” such as roads and railways, and housing and public sector priorities. This would include for the first time plans outlining the building of new prisons, hospitals, GP surgeries and schools.

Ahead of the first meeting of the infrastructure taskforce at the Treasury on Friday, first revealed by the Guardian, Reeves said the body would be “invaluable in the weeks and months ahead” as the government pushed to invest in infrastructure projects.

“Increasing investment in infrastructure is a vital part of delivering on our number one mission to grow the economy and create jobs,” she said.

Government borrowing costs have risen since Reeves first hinted the government could relax its fiscal rules, leading some analysts to warn of the dangers ahead of the budget. However, some experts have questioned whether the risks have been overstated.