The accounting shift could finance infrastructure, housing and business investment. Whether it strengthens the economy depends on what the government buys with the money.

Bryson Davis | Social Storytellers Collective

Britain’s Treasury is examining how to borrow billions more without abandoning the government’s existing fiscal rules. Chancellor John Healey said there was scope for faster and greater investment, with infrastructure, housing and business financing among the possible destinations. The Resolution Foundation estimates that expanding the National Wealth Fund could support an additional £9 billion in annual investment by 2031. Britain did not suddenly become less indebted. It changed the balance-sheet measure used to determine how much borrowing its rules permit.

The Government Started Counting the Asset

The opening was created by a 2024 fiscal-rule change that shifted the government’s principal debt target toward public-sector net financial liabilities. Unlike the narrower debt measure, the broader calculation includes financial assets held by the government alongside its liabilities. That means borrowing £1 billion to make loans or purchase equity is treated differently from borrowing £1 billion to fund a grant or cover operating expenses. The government still owes the money, but the transaction also places an asset on the public balance sheet.

The difference shows up in Britain’s official accounts. Public-sector net debt stood at nearly £2.99 trillion at the end of June, or 94.9% of GDP. Public-sector net financial liabilities — the broader measure now central to the fiscal framework — were £2.66 trillion, or 84.5% of GDP. That 10.4-percentage-point gap exists because the second calculation recognizes more of the financial assets the government holds. The accounting does not erase the debt. It changes which parts of the government balance sheet count against the rule constraining it.

Public Banks Become the Delivery System

That makes Britain’s public financial institutions unusually important. The National Wealth Fund, British Business Bank, UK Export Finance and National Housing Bank provide loans, guarantees and equity financing rather than simply distributing public money. Their combined balance-sheet capacity has grown to nearly £200 billion, allowing the government to direct investment through entities expected to recover money or earn returns over time.

Housing demonstrates how the model is supposed to work. The National Housing Bank has authority to deploy as much as £16 billion through debt, equity and guarantees, with an ambition to support more than 500,000 homes and unlock over £53 billion in private investment over the next decade. The government is not proposing to pay for every home directly. It is using public capital to reduce risk, finance stalled projects and attract institutional money that would not otherwise enter the market.

The Resolution Foundation recommends increasing the National Wealth Fund’s investment by nearly £16 billion over five years — bringing it closer to the scale at which the European Investment Bank operated in Britain before 2016. The estimated direct cost would reach approximately £400 million a year in debt interest after three years, before accounting for returns the assets produce. The fund received £70 million in interest from existing loans during the last financial year.

Borrowing Capacity Is Not Investment Success

The opportunity comes with a more demanding test than whether the borrowing technically complies with the rules. Public investment must finance projects that would not otherwise happen, attract additional private capital and generate returns sufficient to justify the financing cost. A loan to a viable housing project may create homes, employment and an asset that can be repaid. A politically selected investment with weak demand may leave the government holding both the borrowing cost and an asset worth less than expected.

Financial markets will make their own assessment. Britain borrowed approximately £128 billion during the 2025–26 financial year, while government bond yields were already the highest among the Group of Seven when the new borrowing discussion emerged. Investors do not price British debt according to whether a transaction receives favorable treatment under a domestic fiscal rule. They price the volume of borrowing, the government’s credibility and the likelihood that investment will raise future economic capacity.

Britain has not discovered free money. It has adopted a framework that recognizes a genuine distinction between borrowing to consume and borrowing to acquire productive assets. That distinction can create legitimate room for investment after years of underbuilding. It can also become a mechanism for declaring projects affordable before proving they are useful. The success of the policy will not be determined by what the new debt measure allows Britain to borrow. It will be determined by whether the assets built with that borrowing become more valuable than the obligations created to finance them.