Labour need to stop using smoke and mirrors accounting
Tim Dier has a very useful CAPX piece on Labour’s fascination with smoke and mirrors accounting used to flatter debt figures via Public Financial Institutions. The whole piece is well worth reading as an antidote to any lingering hopes that John Healey might turn out to be a responsible Chancellor.
Labour need to stop using smoke and mirrors accounting Imagine borrowing £10,000 from the bank, lending it to a friend, then telling everyone the debt’s gone – because your friend owes you the money. In his first Budget, John Healey will likely use PuFins to bury even more borrowing, channelling billions into Labour’s pet projects Public Financial Institutions (PuFin) are publicly-funded bodies that invest taxpayer money via loans, equity investments and guarantees – with the aim of encouraging or ‘crowding in’ private capital, driving policy goals such as green energy or other infrastructure investment. As I explain in my latest research, prior to 2024, borrowing for PuFins showed up in public sector net debt excluding Bank of England (PSND ex BoE), just as borrowing to build a road would. This handbrake kept the Government honest and meant PuFins were used sparingly.
But in Rachel Reeves’s first Budget, she changed the fiscal rules, from considering PSND ex BoE to considering public sector net financial liabilities (PSNFL).
This meant that the ‘investments’ that PuFins make could largely offset the debt taken on to fund them. Almost like magic, the debt all but disappears from plain sight and barely registers against the fiscal rules.
That’s obviously nonsensical – you still owe the same £10,000 to the bank, regardless of what you did with the money. But that’s Labour’s approach to our public finances. Let me explain how it works.
Source: https://akhaart.blogspot.com/2026/10/labour-need-to-stop-using-smoke-and.html
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