Tories vow to rip up fiscal rules and borrow extra £20bn in bid to counter Labour election pledges

Chancellor Sajid Javid has vowed to rip up the government’s fiscal rules and “borrow to invest”, in a bid to woo voters with extra spending on infrastructure projects such as roads, railways and hospitals.

Mr Javid said his new fiscal rules will allow him to borrow £20 billion more a year for investment in projects over the next five years, as he sought to take advantage of low interest rates.

His announcement came as Conservatives and Labour slugged it out on the economy in the race for the 12 December general election, with shadow chancellor John McDonnell promising an additional £150 billion borrowing for investment over five years.

The chancellor said a Conservative government would stick to two new rules – balancing the overall budget and borrowing no more than three per cent of GDP for investment in long-term infrastructure projects.

If borrowing costs rise, the government will reassess, Mr Javid said in his first major speech of the election campaign.

Speaking underneath a Concorde in a hangar outside Manchester Airport, the chancellor said he believed the 2020s would be “Britain’s best decade yet” as he unveiled new plans for a “new economic era”.

Mr Javid said: “Today I’m announcing new fiscal rules that if elected will allow us to take advantage of the opportunity to invest in our future and our public services but without squandering the hard work of the British people.

“Like anyone who budgets whether it’s a household or small business or large business, I know that we must keep track of what we’re spending, and what we bring in.

“We can’t run an overdraft forever on day-to-day spending, so I can confirm that our first rule will be to have a balanced current budget. What we spend cannot exceed what we bring in.

“Now, while we must retain spending if we want growth to continue and get stronger in the future, then we need to invest in it. Taking the opportunity offered by those historically low borrowing rates.”

The plans set a new ceiling for borrowing for capital projects at 3 per cent of GDP, raising it significantly from its current level of 1.8 per cent.

However the announcement did not cover how the government plans to fund Boris Johnson’s spending pledges on police and schools.

Mr Javid insisted his plans would ensure stability compared to Labour, who he claimed would “wind back the clock, waste billions, and raise taxes”.

But his political rival, Mr McDonnell, told an audience in Liverpool the party would bring about an ”irreversible shift” of power and wealth from London to the rest of the UK – with a £150bn boost for schools, hospitals and council housing.

Accompanied by Labour leader Jeremy Corbyn, the shadow chancellor said: “Power is coming home, back to the people.

“That means change, real change, and it means investment on a scale never seen before in this country and certainly never seen before in the north and outside of London and the south east.

“To achieve that objective it also requires, therefore, an irreversible shift in the centre of gravity in political decision making as well as investment in this country from its location solely in London to be relocated to the North and regions and nations of our country.”

The Institute for Fiscal Studies (IFS) said the Tory plans would take public investment to the highest sustained level in 40 years, while Labour would more than double public investment spending under their plans.

Ben Zaranko, research economist at IFS, said: “Both parties’ plans would represent a sharp change in policy, and Labour’s plans are especially ambitious.

“The key challenge for a government seeking to deliver investment on this scale – particularly in a short timeframe – will be finding worthwhile and viable projects in which to invest.

“Shortages in the number of suitably skilled construction workers, a dearth of ‘shovel-ready’ projects, and practical issues relating to delivery will be challenges the next government will need to think carefully about how to overcome.”

Meanwhile, the Office for Budget Responsibility (OBR), the independent fiscal watchdog, was ordered to cancel its updated outlook on the public finances on Thursday, after the government decided it would break election rules.