OBR warns Reeves' debt rule could cause 'worsening fiscal sustainability'

Public sector net financial liabilities

Chancellor Rachel Reeves could “exploit” the “fiscal illusions” created by the new government debt rule that will free up more money for investment, the Office for Budget Responsibility argued.

In the fiscal watchdog's economic and fiscal outlook released last week, the OBR cautioned that the chancellor could be incentivised to issue "low-quality loans" as part of her new spending and investment rules that has shifted the measure of debt from public sector net debt to public sector net financial liabilities (PSNFL).  This yardstick includes all of the government's assets and financial liabilities such as student loans, equity investments in private companies and funded pension schemes.  Under this framework, "loans are recorded at their nominal value regardless of the probab...