The Chancellor is set to announce plans for a ‘housing bank’, as early as tomorrow’s spending review to channel low-cost lending to housebuilders for affordable homes.

Rachel Reeves’ plans would allow the government’s housing agency Homes England, to deliver cheaper financing by redesignating it as a “public financial institution,” according to the Financial Times.

The paper also reports that the housing department has settled with the Treasury, after a standoff between Reeves (pictured) and deputy prime minister and housing secretary Angela Rayner.

The new deal will see annual funding for the Affordable Homes Programme edge up to £25bn over 10 years, to come in at £2.5bn a year.

This would move the scheme from its current settlement of £11.5bn over five years to March 2026, roughly £2.3bn a year.

This programme builds social housing, with local authorities, private developers and housing associations able to bid for funding.

The move to a ‘housing bank’ connected to Homes England is part of Reeves’ earlier change to the government’s fiscal rules to boost borrowing while aiming to have debt falling over the course of the five-year parliament.

Under this change, Homes England, with its new designation, would be trusted to responsibly create financial assets through big investments or large-scale lending.

Homes England would be one of a small number of government bodies with that label, alongside entities such as the British Business Bank, the National Wealth Fund and the Student Loans Company.

Last week, an MPs’ housing committee said the spending review would ‘make or break’ Labour’s chances of building 1.5 million new homes over the next five years.

Housing, Communities and Local Government committee chair Florence Eshalomi wrote to the Chancellor to “underscore the importance of investment in social and affordable housing.”

Eshalomi warned the Chancellor that “the government will fail to meet this target if it relies on the private sector alone,” to hit its target of building some 300,000 homes a year.

Reeves is understood to want to spend as much as £113bn throughout this parliament across such areas as defence, infrastructure, housing and transport, while capping day-to-day departmental costs.