James Mahone: The British growth covenant – how you turn fiscal discipline into national renewal

James Mahone is a Conservative Party member, and Founder of the Horizon Centre for Public Innovation.

The Sound Money Act was the focus of my previous article, which outlined a blueprint as to how the British government can reduce the risk premium on government debt while reclaiming sovereignty from volatile bond markets.

Critics rightly noted that simply passing a law does not generate prosperity. They went on to ask a deeper question: discipline to what end? They were right to ask. This article answers that question and sets out that counterpart. Fiscal restraint must be combined with a credible framework for economic growth. This framework is named the British Growth Covenant.

The Covenant is not a blanket spending programme or a form of state intervention driven by political incentives rather than economic efficiency. Instead, it is the framework to translate the fiscal credibility obtained from the Sound Money Act into long-term national investment. It will be translated automatically, productively, and transparently. The Sound Money Act and British Growth Covenant work together. The result will be discipline that earns trust — and trust that funds renewal.

If markets view Britain’s public finances as sustainable, there will be a reduction in the risk premium. This means that paying existing debt will be cheaper. There will also be cheaper long-term borrowing costs. A consistent blunder by successive governments has been to allow savings to become absorbed in day-to-day consumption rather than invested in Britain’s productive capacity. The British Growth Covenant will correct this issue.

A Growth Dividend Lock will be at the heart of the Covenant. This will ensure that each year an independent organisation such as the OBR will look at yields on gilts and calculate savings due to reductions in interest payable on gilts. This will be measured against a rolling baseline. From these savings a fixed percentage would be transferred automatically into a ring-fenced UK Sovereign Growth Fund. This is important for three reasons:

First, this becomes self-funding. Investment does not need to be derived from higher taxes or looser borrowing.

Second, savings will not become absorbed into consumption. Rather, these savings become locked into capital formation.

Third, it is visible. These sound money principles would become a generator of tangible national renewal.

The mechanism is also fail-safe. This is a crucial point. If in any given year the growth dividend does not materialise for any reason, credibility is not gambled. Transfers pause automatically. There could be unforeseen circumstances such as domestic shocks or global rate movements. If this were to happen then the fiscal anchor is preserved.

Britain has not lacked ambition but has lacked credible capital allocation. There has been investment but weak scrutiny, politicised project selection, and no exit discipline. The Growth Covenant therefore separates strategy from selection.

Government sets the national priorities. Project selection would sit with a UK Strategic Investment Board. The Board would be independent and assigned by cross-party parliamentary scrutiny. They would serve fixed, non-renewable terms. Parliament via statutory instrument would set the strategic mandate. This ensures democratic direction without political micromanagement. The sole task here is to allocate Growth Fund capital. This capital would be allocated according to a published National Return on Investment framework. Projects would be assessed against four criteria: Productivity and output per hour; Strategic resilience (energy, infrastructure, supply chains); Regional economic rebalancing; Long-term fiscal return through tax base expansion, driven by an increase in economic activity and job creation.

Ministers would not pick projects. Rather, they would be accountable for the system within which projects are chosen. This is how the Golden Investment Rule becomes operational rather than rhetorical.

As stated at the start of this article, the Covenant is not a blanket spending programme, it is not a blank cheque. It is a sequenced programme. Projects that are economy-wide in impact and fast to deploy must have priority in early years. Things such as digital infrastructure, core science funding, or energy grid capacity. This lays the foundations to build momentum. More capital-intensive transformation would be supported in later phases. Frontier research institutions that anchor private-sector ecosystems, modern transit links, next-generation energy, all come to mind. Credibility compounds since early delivery reinforces confidence in later ambition. Thus, sequencing matters.

Regarding prosperity, building physical infrastructure is not enough. The Growth Covenant recognises this and therefore develops a local workforce alongside construction projects. There will be initiatives such as apprenticeships and technical training to train and upskill people in the community. This would be paired with every major investment programme. Economic growth must not simply benefit a few but provide widespread benefits to society. Otherwise, it weakens political support.

The Growth Covenant helps government enable markets, not replace them. It does this by crowding in capital and taking on risks that markets find difficult to price. This could be early-stage research, or planning, for example. Private investment can scale through co-investment structures, regulated asset base models, and long-duration investment vehicles suited to pension funds and insurers. This happens once the foundations have been laid via the Growth Covenant. The goal is to turn every pound of public credibility into multiple pounds of productive private investment.

The Growth Covenant is also designed to prevent delays or avoid being taken over by special interests. Funded projects would face a mid-term performance review which would be mandatory, with termination required if benchmarks are not met. The Covenant would expire after ten years at the programme level unless Parliament voted to renew it. This would be based on results which are independently verified. This becomes a results-driven intervention which is disciplined. This is not a permanent expansion of the state.

Credibility must be visible. The Covenant would be accompanied by a public digital dashboard showing debt-interest savings, transfers into the Growth Fund, projects approved, private capital leveraged and estimated fiscal returns. Citizens would be able to see, clearly and continuously, whether discipline is being honoured and growth delivered.

The Sound Money Act and the British Growth Covenant together form a new social contract for the 21st century. To markets, Britain offers discipline while earning cheaper capital in return. To its people, Britain offers not austerity, but ambition: a decade of national rebuilding funded by the credibility we choose to restore. This is the bargain: restraint where necessary, investment where it matters, and transparency at every stage.

First, we secure our finances. Then, we build our future.