On the day he became prime minister, July 20, Burnham said he would keep the existing fiscal rules and "use obviously any flexibility within them."
The room comes from a rule rewrite that dates back to 2024, when former chancellor Rachel Reeves was running the Treasury. It lets the government borrow for investment without tripping the two main fiscal rules, the limits the government sets on its own borrowing.
The primary rule says tax revenue must cover day-to-day spending, like wages and benefits. Spending on buildings and other long-term projects sits outside that rule.
Investment borrowing can escape the second rule, which limits how much debt the government carries. The route is through public financial institutions, or PuFins, which then lend the money to private operators.
Under the metric the government watches most closely, public sector net financial liabilities, the loans made by PuFins are counted as assets, offsetting the new borrowing.
These rules are self-imposed, which is why the market's view matters so much. They can be revised, as they were in 2024, and the Treasury must persuade investors that the PuFin route will not become an open-ended way to avoid debt limits. If that persuasion fails, the formal accounting will not protect the government from higher interest costs.
The Resolution Foundation estimates that £10 billion of extra borrowing, about $13.5 billion, would add £500 million a year to Britain's interest bill.
Get the free Always Be Buying eBook and learn the simple system for building wealth on any income
Borrow £30 billion instead, and the £23.6 billion cushion under the primary rule, reported in March, would shrink by only £1.5 billion.
Treasury officials worry that the market may see the mechanism as effectively unlimited, pushing up the interest rate the UK must pay.
That would push borrowing costs up, even though they are already the highest in the Group of Seven. Debt interest eats almost 10% of government spending, with the UK paying £110 billion a year to service its £2.9 trillion debt, according to the Office for National Statistics. National debt is already nearly 100% of GDP, and Jonathan Haskel, the new leader of the Office for Budget Responsibility, said in July that there is "little capacity for expansionary fiscal policy."
Investors are also being asked to absorb a lot of UK government bonds, known as gilts. Around £21 billion of gilt sales were planned for the 12 months starting October 2025, and the Bank of England's own sales in 2026-27 are still unknown.
Debt interest is the "key constraint," according to Elliott Christensen, a senior economist at the Resolution Foundation. But he says "real world constraints" matter just as much.
He says there are "only so many builders and so many bricks." Few projects meet the long-term return requirements. That is why Chancellor John Healey has been careful with his words since taking office.
He avoids "flexibility" and prefers "scope," telling the Times of London that faster investment would require cuts to benefits and a reordering of departmental budgets. Healey faces a tough budget on Oct. 28.
Jim O'Neill, a former Goldman Sachs Asset Management chair who advises Burnham, points out that "there is a lot more room under the existing fiscal rules to borrow for investment," as long as a Treasury agency keeps projects focused on growth. Burnham could also push more social housing by showing it would cut future housing-benefit spending.
These fiscal limits are not fixed by statute. They are commitments the government chooses to make, and the 2024 rewrite showed they can be adjusted to suit political priorities. The Oct. 28 budget will be the first sustained test of whether Burnham and Healey can convince investors that the newest borrowing route remains a narrow lane rather than a highway.
A Treasury spokesperson said, "The government will meet the fiscal rules with a buffer against uncertainty," adding that it would get debt down, measuring debt the way the government prefers.
If markets stop believing the rules mean anything, investors become the enforcers. They can push borrowing costs higher, leaving the state with large interest bills that fund nothing.
For anyone watching the Oct. 28 budget, the real question is whether Healey can convince investors the rules still hold.
Download the free Always Be Buying eBook and start putting your money to work today