Chancellor John Healey is pressing ahead with major reforms to the Treasury “rule book” to drive investment out of London to the regions.

He is changing the discount rate on which the value of transport, housing and social infrastructure projects is assessed.

Schemes will in future be judged on a discount rate of 3% rather than 3.5% over periods of time, which will make it easier to demonstrate the long-term value of spending public money on building new schools and roads, among other projects.

The new Government argues that the shake-up will mean that projects which might only deliver more benefits later will get the green light.

But it will inevitably face claims that it has adopted reforms to make it easier to approve schemes which will deliver less economic value - but potentially more social benefits - outside of London.

The announcement comes ahead of a major speech on the economy Mr Healey is due to make on Monday.

The current rules in the Treasury “Green Book” favour London as investment in the capital tends to deliver better returns given its size and it being the country’s economic powerhouse.

The Green Book reforms were first announced by Sir Keir Starmer’s government and Andy Burnham is pushing ahead with them as part of his flagship mission to rebalance the UK’s economy.

Mr Healey also announced a new “place-based” business case system to channel more investment to the regions.

But Lord O’Neill of Gatley, one of Mr Burnham’s key economic advisers, has urged him to focus on London, the West Midlands and the Northern Powerhouse of Manchester, Liverpool and Leeds in his attempt to boost economic growth in Britain.

He told the Financial Times: "I'm a massive fan of the focus on devolution and I hope Andy and his team will be bold on this and everything else."

Meanwhile, the Chancellor has warned that the autumn Budget could be tough, as US President Donald Trump’s war in the Middle East affects the British economy.

Mr Healey issued the warning amid the leap in Government borrowing earlier this week, reflecting concerns among lenders about the inflationary impact of the US’s war with Iran.

Mr Healey also said that he would ensure the UK emerges from his first Budget on October 28 with a solid “buffer against uncertainty”.

Economists have predicted that the fiscal buffer Rachel Reeves built up in her last budget, through a combination of tax rises and departmental spending cuts, will be squeezed by the inflationary pressures of ongoing global turmoil.

This could limit Prime Minister Andy Burnham’s ambitions to tackle the cost-of-living crisis, and spending plans across his wider agenda for Government.