Published on 27th May 2025
The UK’s debt is already nearly the same size as the whole UK economy and is continuing to increase. The Labour Government’s plan to introduce a new measure of it, so as to understate it, is already so far from reality it cannot fool the public, investors, and public credit rating agencies for long.
Renationalisation and the Net Zero transition will expand the acknowledged ‘public sector’, and the state-directed sector, in which private companies are engaged to deliver on public policy objectives.
That is the predicament revealed in my paper ‘The structure of the UK’s public finances and the amount of the UK’s public debt’ published by Global Britian.
It is the first paper in a four-part series about the UK’s public finances and Labour’s plans.
A 4-page summary of the paper is available for download here.
The figures published about the size of the UK public sector are neither comprehensive nor transparent: it is larger than the commonly assumed figure of 40 per cent of the size of the economy (meaning of GDP or Gross Domestic Product), because New Labour’s 1997-2010 Private Finance Initiative is excluded along with rafts of services paid for out of public budgets that are delivered by privately-owned enterprises.
We have a growing sector of the economy which is the state-directed one: ostensibly private, but acting to meet public policy objectives – notably Net Zero. The state-directed sector is displacing entrepreneurialism and wealth creation.
Nor do we have a watertight and comprehensive figure for all the debts that authorities have signed taxpayers up to funding, including those disguised within New Labour’s Private Finance Initiative (PFI). Our estimate puts ‘Public Sector Gross Debt’ at 116 per cent of GDP.
Instead, the authorities present several measures, each one playing around with excluding this or that line of debt, offsetting this or that asset, and producing lower and lower figures:
- ‘General Government Gross Debt’ – 105 per cent of GDP
- ‘Public Sector Net Debt’ – 97 per cent of GDP
- ‘Public Sector Net Debt less Bank of England’ – 90 per cent of GDP
This is dangerously delusional. The authorities, by producing statistics that are below 100 per cent of GDP, have succeeded in establishing 100 per cent-of-GDP as some kind of acceptable norm, and in inferring that anything below 100 per cent represents ‘headroom’ for more borrowing.
The following policies of Keir Starmer and Rachel Reeves will exploit this non-existent ‘headroom’ and expand debt:
- Borrowing by new mayoral authorities;
- Renationalisation, for example of the railways, so that the debts of these renationalised companies fall within the national debt;
- Establishing new ‘Public corporations’ like the National Wealth Fund and Great British Energy and permitting them to borrow;
- Repeating PFI in schemes for Net Zero in particular
At the same time the Labour Government has contended that borrowing to fund day-to-day costs will stop, a pious hope when day-to-day costs appear to be out-of-control and rising inexorably.
The Government’s proposed trick is to increase ‘Borrowing for investment’ and to re-measure national debt so as to exclude what is borrowed for investment. The new measure is called ‘Public sector net liabilities’, and is coming in as an even lower percentage of GDP than ‘Public Sector Net Debt less Bank of England’.
The Government intends to borrow and use the money to build of a lot of new assets. By presenting a figure for ‘net liabilities’ and not ‘net debt’, Labour will net the value of the asset off against the debt taken on to build it. The measure ‘Public sector net liabilities’ will not rise. Thus, the extra debt is magicked away.
The debt really does exist, however, because it attracts interest, and, because of the type of financial scheme involved – a replica of PFI – the interest rate is likely to be 9-10 per cent per annum. The cost of this debt falls on the taxpayer one way or the other.
If one combines this type of highly expensive scheme with a statistical measure that puts no ceiling on the total amount that can be borrowed, then you have the recipe for a financial disaster.