Burnham adviser calls for billions of pounds in borrowing for infrastructure | Andy Burnham

The man tapped by Andy Burnham to be his chief economic adviser has called for billions of pounds more borrowing to pay for investment in infrastructure, in a sign of how Burnham may seek to break from the policies pursued by Keir Starmer.

Jim O’Neill, an economist and former minister, said he wanted the government to create an independent body for infrastructure spending along the lines of the Office for Budget Responsibility (OBR), which could be freed up to spend significantly more on major projects.

The extra borrowing could add to jitters in the bond markets about the prospect of a Burnham government, though O’Neill argued it would still meet the government’s fiscal rules and provide sufficient transparency to reassure investors.

He said: “There is a lot more room under the existing fiscal rules to borrow for investment, and the next chancellor should take advantage of that. We can do way more to boost infrastructure projects, and that is what we should be doing.”

Jim O’Neill could become chief economic adviser in Andy Burnham’s new government. Photograph: Andy Hall/The Observer

With Burnham almost certain to succeed Starmer as prime minister, attention is turning to his likely policies, especially on the economy, where he is seen as more leftwing than the present government.

The Makerfield MP will give a speech next week fleshing out more of his probable programme, including significant measures on devolution.

In the past few weeks Burnham has been consulting three high-profile economists as he looks to flesh out his policy agenda: Andy Haldane, a former Bank of England economist, Richard Hughes, the former head of the OBR, and O’Neill, a former chief economist for Goldman Sachs.

He is also weighing up who to pick as his chancellor, with Ed Miliband, the energy secretary, and Wes Streeting, the former health secretary, emerging as the frontrunners.

Last year Burnham was blamed for a rise in UK borrowing costs when he argued the UK should not be “in hock” to the bond markets, prompting speculation he could ditch the government’s fiscal targets if he became prime minister.

But during his campaign for the Makerfield seat, Burnham said he would stick to the existing fiscal rules and to Labour’s manifesto pledges not to raise income tax, VAT or national insurance.

The Guardian revealed on Monday that Burnham’s transition team had spoken to O’Neill about taking on a role in government, possibly as his chief economic adviser in Downing Street. Other potential roles could be a return to the Treasury, where he was a minister under the Conservative government, or a job as Burnham’s devolution adviser.

O’Neill would not comment, but he did say he thought Burnham should do much more within the fiscal rules to increase infrastructure spending.

Burnham has argued for increased spending on northern transport projects, such as a new underground station at Manchester Piccadilly.

Manchester Piccadilly station, where Burnham has spoken in favour of a new underground station. Photograph: Chris Chambers/Alamy

O’Neill previously chaired the Northern Powerhouse Partnership and has been an advocate of the Northern Powerhouse rail proposals.

Extra borrowing would count on the government’s balance sheet, but under Rachel Reeves’s changes to the fiscal rules it could be balanced out by the assets it pays for.

O’Neill added that bond markets were more likely to accept the additional debt if it was done by an independent body that published its calculations on how much certain projects would boost growth.

This could be achieved by turning the National Infrastructure and Service Transformation Authority (Nista), an agency within the Treasury, into an independent organisation. “We need Nista as a separate, much more transparent entity,” he said. “The public then gets a clearer sense, as do financial markets, as to what the multiplier effects [on growth] would be.”

In a recent interview for Sky News, O’Neill said: “One thing I think Andy might explore is a much more publicly transparent entity – a sort of infrastructure version of the OBR – in which the whole country can see regularly, transparently which big infrastructure projects are going to make a difference and which ones won’t.”

Referring to the bitter political battle over the future of the high-speed rail line to Manchester, he added: “[That would] get away from this very personal, subjective view: I love HS2, I hate HS2, and so on.”