John Healey has revealed plans to increase borrowing through the UK’s state-owned business lender and infrastructure bank.

The Chancellor has allocated an extra £20.4bn to the country’s two major state-owned policy banks for the next five-years. The National Wealth Fund will get around £15.4bn, while the British Business Bank will receive £5bn.

“I will work with pension providers, asset managers and the wider industry to accelerate more private investment into Britain’s innovative, fast-growth firms,” the Chancellor said.

Healey said the new funds will support 140,000 jobs in “strategic sectors”. 

Later in his speech, Healey confirmed the National Wealth Fund and British Business Bank would “launch a new focus on defence, dual use technology and sovereign capability, deploying up to £5bn of investment and lending over the next four years”.

While not a direct breach of the fiscal rules, the government’s use of public finance bodies (Pufins) to borrow more cash has become a lightning rod for criticism.

Oxford Economics said in August the move would be “an accounting trick to raise investment within the fiscal rules. But it would increase the government’s financing needs and risks undermining its fiscal credibility.”

Healey takes advantage of Reeves’ rule change

Former Chancellor Rachel Reeves changed the fiscal rules in her first Budget in October 2024, switching the government’s headline debt target from public sector net debt to public sector net financial liabilities (PSNFL).

Under the new system, financial assets count against debt, so when the Treasury funds a Pufin to make a loan or buy an equity stake, the asset it acquires offsets the borrowing. This paves the way for the government to channel more money into investment through Pufins without raising the measured debt figure.

But the fiscal watchdog has previously warned about such moves, writing in its 2025 fiscal risks report that the borrowing mechanism could have unintended side effects.

They added politicians would be “incentivised to use financing mechanisms such as loans and equity to meet a given policy objective, even if this is not the best value for money mechanism”.

Healey’s manoeuvre comes as pressure mounts to meet the target of spending three per cent of GDP on defence by 2030. Healey resigned as defence secretary under Sir Keir Starmer after the government failed to commit sufficient funding to the armed forces and demanded a timetable to meet the three per cent target.

The Office for Budget Responsibility (OBR) has estimated that reaching three per cent of GDP would require an additional £17.3bn in 2029 to 2030.