A mistake in the UK’s official financial forecasts has left Rachel Reeves £18bn short of headroom to borrow in her ambitious tax and spending plan.
The Office for Budget Responsibility (OBR) was this week forced to “restate” its March estimates for public sector net financial liabilities (PSNFL), the UK’s new measure of public debt.
The figure shows Reeves has £44bn of room to borrow – around £18bn less, Bloomberg reported, than its initial estimate of £62bn in March.
The move could spook already jittery traders who would have assumed Reeves had more money ahead of the Budget than she did.
PSNFL is the new metric Ms Reeves is using to measure the UK’s indebtedness.
Ben Zaranko at the Institute for Fiscal Studies said Reeves’s move to change the debt metric meant the Chancellor had given herself less headroom to borrow than she would originally have expected.
“The Government got less additional space for borrowing than it expected from the switch to PSNFL, in part because the OBR’s March forecast contained an error.
“This speaks to the fact that PSNFL is a newer metric, for which measurement and forecasting methodology are still improving,” he said.
“This is part of the reason why it is somewhat more volatile than the measures of debt which it replaces, though with time – and greater focus and attention paid to it – forecasting may improve and be subject to fewer revisions. This is also another reason why we shouldn’t focus too much on any single measure of the balance sheet.”
The Chancellor is expected to meet her 2030 debt target by a margin of just £15.7bn – an estimate which the IFS has described as “razor thin”.
Richard Hughes, head of the OBR, said it “leaves very little headroom to deal with contingencies, uncertainties, things not turning out exactly as you might have hoped”.
The lower-than-expected headroom comes amid judders in financial markets, where borrowing costs for the UK rose sharply in the aftermath of the high-spending Budget, which the OBR estimates will leave the Government borrowing more than £105bn next year and £70.6bn by 2030.