Rachel Reeves: Chancellor changes debt rules to release billions

Earlier Reeves told the BBC it was important for the government to "get a grip on day-to-day spending" by making sure it was paid for through tax receipts and by reforming public services to make them more productive.

The chancellor said she will confirm a tighter financial rule on spending on welfare, in government departments, and on debt interest.

That rule "is the one that really binds, and it's hard to meet, and that will require difficult decisions on spending, welfare and taxation," she said.

The chancellor said she intended to reverse what she called "the path of decline" that she says she has inherited from the previous Conservative administration.

She suggested this would have seen a fall in government investment from 2.6% of the share of the economy last year to 1.7% by 2028-29, or £20bn a year in cash terms.

"If we continued on that path, we'd miss out on other opportunities, and other countries would seize them," she said.

"We need to invest more to grow our economy and seize the huge opportunities there are in digital, in tech, in life sciences, in clean energy, but we'll only be able to do that if we change the way that we we measure debt," she said at a meeting at the International Monetary Fund (IMF) in Washington DC.

Sir Keir told the BBC the change to the debt rules showed the "mindset of the new government".

"We're going to clear the decks,” he said. "If you know what the problem is, what the challenge is, every business knows this, every family knows it, run towards it and fix it."

The Treasury had already signalled that a rule change was likely ahead of the Budget.

The chancellor cited top economists as backing the move, including both the former governor and chief economist of the Bank of England, Mark Carney and Andrew Haldane, as well as former Conservative Treasury minister Jim O’Neill.

She also referred to the words of a top IMF official overnight.

The organisation's first deputy managing director Gita Gopinath backed greater investment, speaking to the BBC: "I just want to emphasize again, that public investment is needed in the UK.

"If you compare the UK to G7 countries, investment has fallen short, and so that spending will have to take place alongside having the kind of rules that stabilizes debt over the next five years."

But writing in The Times newspaper last week, Paul Johnson, director of the Institute for Fiscal Studies think tank, said that using a broader debt measure called public sector net financial liabilities could have downsides, including potentially spooking financial markets, which fund the government's borrowing.