How are different measures of public debt forecast to change?

The main measures of public debt used today are:

• Public sector net debt (PSND), the primary measure used by chancellors between 1997, when ‘fiscal rules’ were formalised by Gordon Brown, and 2022
• Public sector net debt excluding the Bank of England (PSND ex BoE), which since 2022 has replaced PSND as the primary measure targeted by chancellors
• Public Sector Net Financial Liabilities (PSNFL), a broader measure used since 2024
• Public Sector Net Worth (PSNW), the most comprehensive measure
• General Government Gross Debt (GGGD), a narrower measure than the above measures

A detailed explanation on how each of these is constructed can be found in our accompanying explainer, What are the different ways to measure public debt? This explainer looks at how these different measures of debt have evolved, and are expected to continue evolving, over time.

The figure shows all these metrics as a share of GDP. This is the relevant comparison for measures of the public sector balance sheet, as it is easier to pay off debts if the economy is larger because a larger economy can generate higher tax revenues. 
 

Until 2022, public sector net debt (PSND) was the measure targeted by chancellors, but during the Hunt chancellorship, between 2022 and 2024, the Treasury shifted focus to public sector net debt excluding the Bank of England (PSND ex BoE). This is a relatively narrow measure of public indebtedness and is expected to fall less quickly over the remainder of this decade compared to PSND. This is due to a combination of the unwinding of the Bank of England’s Term Funding Scheme and the effects of unwinding Quantitative Easing (QE). 

In comparison, the measure used by Rachel Reeves as chancellor since October 2024, public sector net financial liabilities (PSNFL), is expected to improve more quickly over the next five years than the narrower debt measures, as is public sector net worth (PSNW). This is because debt is increasing in part due to the public sector issuing loans – most importantly student loans – a large share of which is expected to be repaid and so counts as an 'asset' in these broader measures of debt. In addition, unfunded pension liabilities (which are captured in PSNW) are expected to decline over the next few years as most public sector pensions are now less generous than they used to be, meaning PSNW (which captures the liabilities of unfunded pension schemes) is forecast to improve more quickly than PSNFL (which does not).

What headroom does the chancellor have against the fiscal rule requiring PSNFL to fall?

The current fiscal rule,  adopted by the Labour government in 2024, requires that PSNFL be on course to fall as a share of GDP in the fifth year of the forecast horizon. In the latest forecast, published in October 2024, this meant PSNFL needed to fall between 2028/29 and 2029/30 and the government met this rule with £15.7bn of headroom.

Had the rule been defined using one of the other measures instead, requiring the measure to fall as a share of GDP by the fifth year of the forecast:

• £6.6bn if the rule was defined in terms of PSND
• £16.9bn using PSNW

However, the rule would not be met by:

• -£5.8bn if the rule was defined in terms of PSND exBoE
• -£1.8bn if the rule was defined in terms of GGGD