Labour set to exploit fiscal rules in order to increase borrowing by £9bn extra per year in effort to kickstart economy

Upon entering No10, Andy Burnham announced he was eyeing up some "flexibility" in the fiscal rules while sources insist the Chancellor placed fiscal discipline as his "No1 priority".

The new mechanism could mean the Government could allow spending on "assets" to be offset against borrowing costs, allowing ministers to act without abiding by the rules, The Times reported.

Elliott Christensen, a senior economist at the Resolution Foundation think tank, said the move could allow "productive investments" which will pay off.

He said: "Rachel Reeves’s changes to the fiscal rules mean that the Government now has greater scope to address that challenge by making productive investments in the economy that in the long run will pay for themselves.

"The new Chancellor should start by boosting the scale of the National Wealth Fund [which] would mean an additional £9billion annual investment by 2031 in real terms."

"As a result we think that the bond markets will consider them as credible commercial market investment and not materially push up the cost of borrowing," he added.

The Budget is due to be delivered on October 28

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Research economist Nick Ridpath, for the Institute of Fiscal Studies, insisted there was "some flexibility" around the economic rules - but warned there was not an "unlimited pot of money".

Now, Mr Healey is believed to be on the hunt for some buffer room, with just three months to go until he is due to deliver his first Budget as Britain's Chancellor of the Exchequer.

He will speak before MPs on October 28, which is nearly a month earlier than Rachel Reeves's last Autumn Budget in No11.

Mr Healey vowed to uphold the fiscal rules, while adhering to Mr Burnham's bid to "move power and money out of Westminster".

Mr Burnham and Mr Healey told ministers they will soon have to tighten their belts

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As a results, officials are expecting more funding for local authorities across Britain, and less on centralised Government.

"At the last budget there was around £27billion worth of headroom that could theoretically be used to increase investment, though there are clear drawbacks to putting too much of a dent in the fiscal buffer," Mr Ridpath told the paper.

Nevertheless, one Treasury official claimed that the Chancellor was assessing a "range of options".

Mr Burnham, since becoming Prime Minister, has laid out his ambitious pledges to kickstart the economy under his leadership.

And, to fund the radical changes, Mr Healey told ministers to prepare for budget cuts to pay for their boss's new spending pledges.

The Chancellor of the Exchequer said he and the Prime Minister have written a letter to every member of the Cabinet, urging them to rethink their budgets to pay for the Government's plans to expand technical education, devolve power to regional authorities and help with the cost of living.

He also could not rule out tax rises in his first Budget.

Mr Healey told The Times: "We've written to the Cabinet to say that if we're serious about new priorities as a second-stage Labour government we have to be serious about — and they have to be serious about — reprioritisation of their plans, their budgets.

"They need to pay for the new things they want to do this year and next year within the budgets they've already got."