The government will change its self-imposed debt rules to free up billions of dollars for infrastructure spending, the chancellor told the BBC.
Rachel Reeves said she would make technical changes to the way debt is measured, which would allow it to fund additional investment.
She said this was done “so that we can grow our economy and bring jobs and economic growth to the UK”.
However, Reeves’ first budget next week is still expected to mean some cuts to public services.
The government has pledged to reduce debt as a share of the economy within five years.
Wider debt measures are expected to allow up to £50bn of additional investment borrowing, although not all of this money is expected to be allocated in the budget.
The chancellor said she intended to reverse what she said was the “path of decline” she inherited from the Conservatives.
She said this would see government investment fall from 2.6% of the economy last year to 1.7% in 2028-29, or £20bn a year in cash investment.
“If we continue on this path, we will miss other opportunities that other countries will seize,” she said.
“We need to invest more to grow our economy and seize the huge opportunities in digital, technology, life sciences, clean energy, but we can only do that by changing the way we measure debt,” she told International Money in Washington, D.C. said at the International Monetary Fund (IMF) meeting.
The Ministry of Finance has sent a signal The rule changes are likely to come before the Budget on 30 October.
The chancellor cited top economists such as Mark Carney and Andrew Haldane, as well as former Conservative finance minister Jim O’Neill, in support of the move.
She also pointed to comments made overnight by a senior International Monetary Fund official.
Gita Gopinath, the organization’s first deputy general manager, supports greater investment, telling the BBC: “I want to emphasize again that the UK needs public investment.
“If you compare the UK to G7 countries there is underinvestment so spending has to be accompanied by rules to stabilize debt over the next five years.”
It is understood the extra leeway will not be used for additional day-to-day spending or reductions in planned budget tax increases.
The chancellor also said she would confirm tighter rules on government sector welfare spending and interest on debt.
She said the rule “is a truly binding rule and will be difficult to meet, requiring difficult decisions on spending, benefits and taxes”.
The Conservative Party said that before the election, Reeves “promised not to ‘tamper with’ the fiscal rules, and now it appears that she will do so.”
Shadow chancellor Gareth Davies said uncertainty over any potential additional borrowing could bring the risk of “interest rates continuing to go higher for longer” and households would “pay the price” .
