Published on 27th May 2025
LABOUR’S new ‘iron’ fiscal rules will open the floodgates to ‘borrowing for investment’, under the Government’s new measure of the national debt, called ‘Public sector net liabilities’.
That is the message of my paper ‘‘Borrowing for investment’ – what is meant by this statement in theoretical terms’ published by Global Britain.
You can download a 4-page summary of the paper here.
The statement means firstly that, as long as any borrowings are spent on public assets, the assets can be netted off against the borrowings that enabled their construction. ‘Public sector net liabilities’ will seemingly remain stable even where huge amounts of new debt are added.
Secondly, the nation’s Gross Domestic Product (GDP) will rise as the debt is spent on the new assets. There is a short-term ‘sugar rush’ of GDP growth. The ratio of Debt-to-GDP will fall, as long as creditors, investors and public credit rating agencies are gulled into looking at ‘Public sector net liabilities’, and not at ‘Public sector net debt’.
Thirdly, it means that the government will mobilise schemes structured exactly like New Labour’s ‘Private Finance Initiative’ (PFI) and the EU’s InvestEU programme: debt-funded schemes aimed at the Net Zero transition, with the costs being funnelled through to businesses and individuals in a number of ways, adding up to a major rise in the cost of living.
Within these schemes the public sector acts as the taker of the highest risk and the receiver of the lowest return. This is because the private sector will not finance it.
The public sector both takes on the high risk/low return amount in the scheme’s financing itself, at the same time as causing the scheme to take on external debt from lenders and investors of fifteen to twenty times the amount. The public sector strikes a contract with the scheme that makes businesses and individuals responsible for the scheme’s debt service, just as they were under PFI for new schools, hospitals and university buildings constructed in Labour areas.
The credit risk for lenders and investors is substantially the same as if they bought a government bond. Notwithstanding the low credit risk, the return for investors is 5 per cent higher: that is the premium required by investors for enabling the government’s accounting trickery.
High returns for investors mean a high debt service cost for the scheme, which can only translate into a high cost of the scheme’s product for its users: it is foisted on businesses and individuals who cannot shop elsewhere, and for a long period.
This creates a medium-term ‘hangover’ for the economy to follow the short-term ‘sugar rush’ of GDP growth, as the schemes deliver no pull-through of wealth creation, and their excessive cost diverts resources away from productive spending and investment. Instead the economy is lumbered with a mixture of higher taxes and usage charges needed to pay the scheme enough to meet its debt service costs.
This is what is already happening to the EU with InvestEU having now existed for ten years. It has been happening to the UK for some time under PFI: £50 billion in capital cost was spent by New Labour 1997-2010, but the total bill including financing costs is projected to be £278 billion up until 2052-53. That is a ratio of £5.56 of total cost for every £1 of building cost.
On top of acting as a running sore on businesses and individuals, the schemes divert money away from genuinely entrepreneurial opportunities, since a 5 per cent premium over a government bond for the same credit risk has the effect of hoovering-up money into these schemes and away from others.
Genuine entrepreneurialism, risk-taking and high returns all dwindle, and the economy begins to stagnate, trends that are becoming visible in the EU economy.
That is the present for UK businesses and individuals wrapped up within this Labour Government’s tantalizing promise of boosting borrowing for investment.