This is the most boring blog you’re ever going to read. Truly dull. It contains some very big numbers and zero sex appeal.
And yet, it marks a fundamental shift in how government works in the UK—a quiet but far-reaching change that’s been unfolding over the past year and underpins the most recent Government Spending Review.
At the heart of this shift are two major changes to how the UK Treasury operates:
- A new fiscal target to reduce debt
- A redefinition of what “government debt” actually means
Together, they reset the rules of the game.
1. The New Fiscal Rule: Debt Must Fall (Kind of)
The first change is relatively simple: the government has committed to reducing debt as a share of GDP by the next general election. It doesn’t sound revolutionary, but it matters.
Since 2010, the Conservatives have used public debt as a political weapon—justifying austerity on the grounds of “fiscal responsibility” while using the savings to fund tax cuts rather than pay down debt. Then came COVID, and borrowing ballooned to keep the economy afloat during lockdowns. As if that weren’t enough, Liz Truss took a sledgehammer to market confidence, sending government borrowing costs soaring.
Today, debt interest alone accounts for around 8% of all public spending. That’s why the Chancellor is under pressure to find cuts—even as public services fall apart.
Rachel Reeves, now Chancellor, has stuck with the debt target. But she’s also done something else—something that changes the rules of the game.
2. Changing the Definition of Debt
Not all public borrowing is equal. Borrowing to fund day-to-day spending makes sense during a downturn (counter-cyclical spending), but it’s unsustainable long-term—especially in a country whose economy has been on life support since the Brexit vote.
Borrowing for investment, on the other hand—say, on infrastructure—is different. It boosts economic growth and productivity. Financial markets generally tolerate this kind of debt, especially if it funds roads, rail, or power stations rather than tax giveaways.
Reeves has widened the scope of what counts as investment—and what doesn’t count towards the headline debt target.
This allows her to launch a wave of capital spending without technically breaching the rules. She’s also using this leeway to create a suite of state-backed financial institutions to partner with the private sector:
- Great British Energy
- The National Wealth Fund
- The British Business Bank
Together, these institutions now have access to £9.6 billion in financial transactions (loans and equity stakes) and an additional £4.8 billion to catalyse private investment in housing.
Big Numbers, Big Projects
This isn’t just creative accounting. It’s real money going into real projects:
- £15.6 billion by 2031–32 through new Transport for City Regions (TCR) deals for metro mayors
- £39 billion over 10 years for a new Affordable Homes Programme
- £14.2 billion for Sizewell C—the first state-backed nuclear power station since 1988
- £22.6 billion per year for R&D by 2029–30 to support a modern Industrial Strategy
- £16 billion to establish the National Housing Bank
And towering over all of it is the National Infrastructure Strategy, promising £725 billion over the next decade in economic and social infrastructure—from schools and hospitals to broadband and business parks.
This isn’t a minimalist state. It’s an activist one. A complete repudiation of the Cameron/Osborne/Truss/Farage vision of Government. A massive break with the past.
The Accounting Change That Changed Everything
Reeves’ more subtle move is to change how we account for debt—shifting from the old Public Sector Net Debt (PSND) measure to a new one: Public Sector Net Financial Liabilities (PSNFL).
The old system ignored the value of long-term financial assets held by the state—things like government loans or equity stakes in private firms. That created a perverse incentive: governments could make the books look better by flogging off valuable assets at a loss (like the student loan book), because the liabilities disappeared but the assets didn’t count.
The new measure solves that problem. It recognises long-term financial assets and balances them against liabilities. In plain English: when the government invests in the economy—by taking stakes in companies or making long-term loans—it no longer looks like it’s throwing money into a black hole. It shows up as an asset on the books.
This flips the logic of fiscal policy. Under PSNFL, investing makes the numbers look better, not worse.
It’s a structural shift away from privatisation and austerity toward public investment and state involvement.
Captured by the Treasury? Maybe Not This Time
There’s a long tradition of Chancellors being captured by the Treasury’s institutional conservatism—becoming glorified bean counters obsessed with saying “no” to their colleagues.
Rachel Reeves may still fall into that trap. And yes, it was a mistake not to reform the Office for Budget Responsibility (OBR) before setting these new targets—it limits flexibility and locks in assumptions.
But credit where it’s due: these are the biggest changes to public finance since Gordon Brown made the Bank of England independent nearly 30 years ago.
Reeves is mocked as “Rachel from Accounts” by misogynists on both the left and the right. But quietly, methodically, she is rebuilding the British state—and permanently changing how government finance works.
Be Careful What You Wish For
People on the left have spent years dreaming of a Scandinavian-style social democracy. Well—here it is.
It won’t feel like it overnight. And yes, the numbers are boring, the rules are arcane, and the institutions have names like think-tanks in a Yes, Minister episode.
But this is how it starts: with accounting changes and budget lines, not slogans.
The British state is becoming more interventionist, more strategic, and more comfortable using public power to shape markets. It’s not quite socialism, and it’s not a revolution—but it is a radical departure from the past 40 years of orthodoxy.
And it’s all hidden in the footnotes.
https://www.gov.uk/government/publications/spending-review-2025-document/spending-review-2025-html