The government will change its self-imposed debt rules in order to free up billions for infrastructure spending, the chancellor has told the BBC.
Rachel Reeves said that she would make a technical change to the way debt is measured which will allow it to fund extra investment.
She said this was being done “so that we can grow our economy and bring jobs and growth to Britain”.
However, Reeves’ first Budget next week is still expected to mean some cuts to public services.
The government has committed to get debt falling as share of the economy in five years’ time.
The wider debt measure is expected to allow for up to £50bn more borrowing for investment, although not all of this is expected to be allocated at the Budget.
The chancellor signalled that she intends to reverse what she called “the path of decline” that she says she inherited from the Conservatives.
She suggested this would have seen a fall in government investment from 2.6% of the share of the economy last year to 1.7% by 2028-29, or £20bn a year in cash terms.
“If we continued on that path, we’d miss out on other opportunities, and other countries would seize them” she said.
“We need to invest more to grow our economy and seize the huge opportunities there are in digital, in tech, in life sciences, in clean energy, but we’ll only be able to do that if we change the way that we we measure debt,” she said at a meeting at the International Monetary Fund (IMF) in Washington DC.
The Treasury had already signalled that a rule change was likely ahead of the Budget on 30 October.
The chancellor cited top economists as backing the move including Mark Carney and Andrew Haldane, as well as former Conservative Treasury minister Jim O’Neill.
She also referred to the words of a top IMF official overnight.
The organisation’s first deputy managing director Gita Gopinath backed greater investment, speaking to the BBC: “I just want to emphasize again, that public investment is needed in the UK.
“If you compare the UK to G7 countries, investment has fallen short, and so that spending will have to take place alongside having the kind of rules that stabilizes debt over the next five years.”
It is understood the extra room for manoeuvre will not be able to be used for extra day-to-day spending or to reduce planned Budget tax rises.
The chancellor also said she will confirm a tighter rule on spending on welfare, in government departments, and on debt interest.
That rule “is the one that really binds, and it’s hard to meet, and that will require difficult decisions on spending, welfare and taxation,” she said.
The Conservatives said that before the General Election, Reeves had “promised that she would not ‘fiddle’ the fiscal rules, and now it seems she is going to do exactly that”.
Gareth Davies, shadow exchequer secretary, suggested that uncertainty around any potential additional borrowing may risk “interest rates staying higher and for longer”, with families “paying the price”.