Rachel Reeves changed the fiscal rules to unlock £50bn of investment. The Office for National Statistics just classified Britain’s biggest energy project as pure debt.
A tale of two numbers
There was a moment, back in the autumn, when something approaching economic sanity seemed to break out in Whitehall. Rachel Reeves, under pressure from every growth-obsessed economist in London, quietly changed the way Britain measures its debt. Out went the old gross target. In came something called Public Sector Net Financial Liabilities — PSNFL, if you like jargon. The idea was simple enough: if the government borrows to buy an asset worth roughly what it paid, that's not really debt. It's a balance sheet swap.
Fast forward to this week. Ed Miliband announces £14bn for Sizewell C, a nuclear power station that will generate electricity for 60 years, employ thousands, and quite possibly save the country from blackouts. You would think, under the new rules, that £14bn would be treated as what it is: an investment. You would be wrong.
The Office for National Statistics, in its infinite wisdom, has decided that a nuclear power station does not count as a "financial asset." Not for the purposes of the fiscal rules, anyway. So the full £14bn hits the debt tally. The same logic, reportedly, applies to affordable housing. Build a house, borrow the money, and the Treasury treats it as if you'd spent the lot on consultants and office parties.
The jobsworths strike back
Peston, who has been banging on about this for weeks, puts it well. The fiscal rule change was supposed to unlock investment. Instead, it has unlocked nothing. The ONS — unelected, unaccountable, and apparently unpersuadable — has essentially vetoed the whole exercise. Their argument is technical. A "financial asset," in their book, must be something that can be readily sold or used as collateral. A nuclear reactor, apparently, fails this test. Never mind that it produces £billions in revenue. Never mind that the French, the Chinese, and the Finns all manage to finance nuclear stations without pretending they're buying government bonds.
This is not a trivial point. Reeves' fiscal headroom, according to the Office for Budget Responsibility, was already wafer-thin — perhaps £9bn against her target. Add £14bn for Sizewell, plus whatever housing investment the Treasury had in mind, and that headroom evaporates. The Chancellor then faces a choice: cut other spending, raise taxes, or admit the whole exercise was a charade.
The real cost of conservatism
The tragedy here is not just the lost investment. It's the lost credibility. Reeves took a political risk changing the fiscal rules. The bond vigilantes, the Daily Telegraph leader writers, the cautious mandarins in the Treasury — all of them warned that fiddling with debt definitions was a slippery slope. She did it anyway, on the promise that it would free up capital for growth. Now we discover the definition was changed but the outcome is the same. The ONS has effectively restored the old rule by the back door.
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What is the point of a fiscal framework if it cannot distinguish between borrowing to build a power station and borrowing to pay the heating bills? One leaves you with an asset. The other leaves you with a memory. The current system treats them identically. That is not prudence. That is superstition.
The Treasury, to be fair, is aware of the absurdity. Officials brief that they are "in discussions" with the ONS. But the ONS is independent. It answers to the UK Statistics Authority, not to Number 11. And the ONS has form here. It classified Network Rail's entire borrowing as public debt, even though the railways generate revenue. It classified student loans as spending, even though most are repaid. The pattern is clear: if the state does it, it's a cost. If the private sector does it, it's an investment.
Austerity by another name
Meanwhile, the spending round looms. The Treasury is reportedly earmarking billions in cuts to departments, benefits, and public sector pay. Prem Sikka calls it austerity. The government calls it "fiscal responsibility." Either way, it means less money for the services people actually use.
The triple lock on pensions, by contrast, remains untouched. That is partly because pensioners vote, and partly because the government is terrified of the grey lobby. But there is another angle, noted by a few sharp-eyed commentators on X. If inflation falls by September — as it is expected to — the triple lock uprating will be smaller. The Treasury saves money without having to defend a cut. Cynical? Possibly. But this is the Treasury we are talking about.
The deeper problem is that Britain's fiscal debate has become a kind of theatre. The government pretends to have room for manoeuvre. The ONS pretends the rules are set in stone. The OBR pretends the forecasts are reliable. And everyone pretends that £14bn for a nuclear power station is somehow the same as £14bn for a jamboree of management consultants.
What actually needs to happen
Two things. First, the Treasury needs to stop outsourcing its fiscal policy to statisticians. The PSNFL rule was a good idea. It should be implemented as intended. If the ONS cannot classify a power station as a financial asset, change the classification. Or change the rule to explicitly exempt productive infrastructure. Or just ignore the ONS and set the rules yourself. That is what sovereign governments do.
Second, the Chancellor needs to be honest about the trade-offs. If the fiscal headroom is gone, then either taxes rise, spending is cut, or the debt target is relaxed. Pretending that a rule change can conjure £50bn out of thin air, while the ONS quietly cancels it, is the kind of fiscal fiction that ends in tears.
The markets will forgive a government that invests sensibly. They will not forgive a government that promises reform and delivers nothing. Reeves has six months to prove the rule change was not pointless. The clock is ticking.
