Rachel Reeves is set to change the government’s rules on debt to allow her to borrow more than £50 billion for long-term capital spending projects.

In a round of interviews on the sidelines of the IMF, the Chancellor said the reform of the fiscal rules would not be for “giveaways” and that there would be strict “guardrails” in place.

The change — to be confirmed in next week’s budget — will allow ministers to borrow to spend on projects including clean energy technologies and physical infrastructure.

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The Chancellor also confirmed that “taxes will need to rise.”

Ms Reeves said: “I can confirm that we will be changing the way that we measure debt in the budget statement next week but I’ll set out the details of that to parliament.”

She added: “We will get debt falling as a share of our economy during this parliament but the changes that we will make to the investment rule will free up money to invest in things that deliver a long-term return for our country and for our taxpayers.”

Currently, the government is committed to paying for day-to-day spending through revenues, and to have debt as a share of the economy falling in the fifth year of forecasts produced by the Office for Budget Responsibility (OBR).

The speculation is that she will use public sector net financial liabilities (PSNFL) as her new benchmark for measuring government debt.

This means looking at the overall financial obligations or debt that the public sector owes, after accounting for its financial assets, including expected student loan repayments.

According to the Institute for Fiscal Studies, the shift to PSNFL would give her headroom of around £53bn.

Ms Reeves’ predecessor in No 11, Jeremy Hunt, who established the rule during his time in office following the turmoil triggered by Liz Truss's mini-budget, hit out at the Labour politician’s changes.

“The consistent advice I received from Treasury officials was always that increasing borrowing meant interest rates would be higher for longer – and punish families with mortgages,” he shared on X.

“What's even more remarkable is that the Chancellor hasn't seen fit to announce this major change to the fiscal rules to Parliament,” he added, warning: “The markets are watching.”

Details of the rule change were leaked to the Guardian yesterday, prompting some movement in the marks, Yields on British government bonds climbed on Thursday morning by about six points, increasing the cost of government borrowing.

Writing in the FT, Ms Reeves said: “My fiscal rules will do two things. The first and most important: my stability rule will mean that day-to-day spending will be matched by revenues.

“Given the state of the public finances and the need to invest in our public services, this rule will bite hardest.

“Alongside tough decisions on spending and welfare, that means taxes will need to rise to ensure this rule is met. I will always protect working people when I make these choices while taking a balanced approach.

“Crucially, my stability rule will also cover the interest on our national debt and unlike the previous government, I won’t cut capital budgets to make up for shortfalls in the day-to-day running costs of departments.

“My second fiscal rule, the investment rule, will get debt falling as a proportion of our economy.

“That will make space for increased investment in the fabric of our economy, and ensure we don’t see the falls in public sector investment that were planned under the last government.”

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Ms Reeves told ITV: “What I hope that people will see in the Budget next week is that I’m a responsible Chancellor being honest and transparent about the situation with the public finances and indeed the trajectory for public services, but that – in that situation and the difficult choices – that we’ve done everything in our power to protect working people, to begin to fix the NHS and to start to rebuild our economy and fix the foundations of our economy.”

Ms Reeves said she wants to reverse the pattern of falling investment spending. Current capital spending is on course to decline from 2.5% of GDP to 1.7% over the next five years.

“If we continued on that path, we would be embracing a path of decline,” Ms Reeves said. “The real debate now in British politics is whether you are on the side of investment or on the side of decline. I don’t want to see public sector net investment as a share of our economy decline in a way that is currently set out. Under our current fiscal rules, we would not be able to reverse that path.”

Liberal Democrat Treasury spokeswoman Daisy Cooper said: “The Chancellor must invest any extra borrowing wisely and that should start by fixing the previous Conservative government’s legacy of crumbling hospitals and GP practices that plague our communities.”