Persnuffle: How Rachel Reeves has 'fiddled figures' to find an extra £50bn

It sounds like a children’s cartoon character or a fun-for-all-the-family board game.

But Persnuffle is in fact the nickname that has been applied to Chancellor Rachel Reeves’ move  to borrow £50 billion more than her predecessor Jeremy Hunt could.

She has changed the UK government’s fiscal rules that measure her debt target, meaning she can fund investments without relying solely on spending cuts or higher taxes.

Chancellors since Gordon Brown in 1997 have imposed fiscal rules on themselves to reassure voters and markets they will not let government borrowing and debt run out of control.

Chancellor Rachel Reeves leaves 11 Downing Street with her ministerial red box before delivering her Budget | PA

Labour’s 2024 election manifesto said the party would follow two rules. 

The first was that the current Budget would be in balance so that day-to-day costs are met by revenues. The second was that debt must be falling as a share of the economy by the fifth year of the economic forecast.

Ms Reeves has changed the definition of debt to give herself more freedom to invest.

Until now, the definition was underlying debt, or “public sector net debt excluding the Bank of England”. This balanced the government’s liquid assets, such as foreign exchange reserves, against the state’s liabilities such as the bonds and loans that need repaying.

Now, the definition is public sector net financial liabilities - PSNFL, hence the name “persnuffle” coined by economists. This includes a broader range of assets and liabilities, with one major change being the way that student loans are treated. An assumption about how much student loan debt will be repaid to the government is included as an asset, rather than the whole loan counting solely as a liability -  as it did under PSND.

Under the PSNFL definition of debt, Mr Hunt would have had £53bn more “headroom” in his Budget last March.

But borrowing is still borrowing and the burden of repaying the government’s spending now shifts even further on to future generations.

The move is also likely to mean higher interest rates. The extra £50bn of borrowing amounts to 1.6 per cent of GDP. Treasury analysis in 2023 suggested an increase of borrowing amounting to 1 per cent of GDP could push rates up by between 0.5 and 1.25 percentage points.

The change has led to accusations Ms Reeves is cooking the books to help dig herself out a fiscal hole.

Mr Hunt, now the shadow chancellor, has said the advice he was given by officials when he was in Number 11 was that increasing borrowing would keep interest rates higher “and punish families with mortgages”. The Institute for Fiscal Studies has said: “It is hard to avoid the suspicion that the government is attracted not by any theoretical advantages of a change in the debt rule, but by the fact that it would allow for significantly more borrowing for investment.”

With the national debt now somewhere near £2.7 trillion - at or close to 100 per cent of GDP for the first time since the 1960s - many question the wisdom of changing fiscal rules simply to put more on the nation’s credit card.

The Office for Budget Responsibility expects debt interest spending for 2024-25 to hit £89bn. For context, this year’s defence budget is expected to be around £55bn.