Rachel Reeves could borrow an extra £80bn to fund government spending on infrastructure and green energy, according to lenders.
The Chancellor is trying to convince investors in UK government bonds, also known as gilts, that they can support tens of billions of pounds in additional borrowing without triggering a Liz Truss-style market panic.
An assessment by Lloyds Banking Group has now found they would be willing to lend the government £80bn more of gilts over the next five years “for productive infrastructure investment”.
The fresh borrowing could help plug an alleged £22bn “black hole” in the public finances, on top of spending cuts and tax rises expected to be unveiled in Labour’s maiden Budget on 30 October.
But Lloyds, which is among the biggest market makers for gilts, warned a sum of £80bn could only be unlocked if Reeves is clear about her plans and does not rush to borrow billions immediately.
Other major players in the market have said investors could buy up to £25bn of gilts over the remainder of this financial year, if they too have clarity on the plans.
The news follows reports last week that Wall Street titan Goldman Sachs and European investor Amundi were growing more favourable towards gilts.
Reeves has signalled that she plans to change the fiscal rules to let her borrow more to fund housing, roads, hospitals and energy projects.
These new fiscal rules may exclude losses from the Bank of England from the debt calculation, alongside extra borrowing used to set up public institutions. A more radical option could see the government change how debt is calculated to take into account the value of investments.
Lloyds chief executive Charlie Nunn told The Sunday Times that any new fiscal framework would “need to be clearly explained and understood” and the Budget must “lay out clear and credible messages on disciplined in-year spending and the new deficit golden rule, alongside how new investment yields benefits”.
“If those conditions are met, then our soundings indicate a market consensus is emerging that up to £80bn of additional government borrowing for productive infrastructure investment, phased over the next five years, could be digestible,” he said.
The government has promised “independent checks and balances” against its project spending, including setting up a new body to oversee infrastructure projects and an Office for Value for Money.
