What exactly is PSNFL?: Explaining the new headline target for government debt

Today, the Chancellor of the Exchequer has announced that the Government will use a broader definition of debt for its fiscal target, Public Sector Net Financial Liabilities (PSNFL), referred to by government as ‘net financial debt’. Jessica Barnaby explains how that statistic is defined and how it differs from the metric used before.  

One of the main fiscal targets of the government has been to reduce the level of debt. Debt can be defined in different ways and estimates of these definitions are presented every month in our Public Sector Finances publication. This includes estimates of the public sector balance sheet, which shows the financial position at a single point in time and sets out the liabilities (amounts owed) and the assets (amounts owned) of the public sector, in line with international statistical guidance. 

The previous main debt measure used as a fiscal target was ‘public sector net debt excluding public sector banks and excluding the Bank of England’ (‘PSND ex BoE’ for short), as a proportion of GDP. This measure covers not just the debt of central government but also local councils and state-controlled companies (such as Network Rail or the BBC).  This is also a ‘net’ measure because the public sector’s liquid assets (effectively money in the bank) are netted off against liabilities. It largely reflects the stock of outstanding gilts (bonds issued by HM Treasury) that have funded past spending, and PSND ex BoE currently stands at around £2.6 trillion (equivalent to around 91% of GDP). It is typically expressed as a ratio to nominal GDP, so is affected both by changes in debt levels as well as the pace of economic growth. 

However, beyond the scope of PSND ex BoE, the public sector has both many more liabilities and many more assets. For example, it owns financial assets such as shares (for example, the Government’s remaining shareholding in the NatWest Group) and money is owed to it, (such as from student loans expected to be repaid).  

A wider balance sheet measure that the ONS already produced and which the government has chosen to target today is known as ‘public sector net financial liabilities excluding public sector banks’ (‘PSNFL ex’). It includes the Bank of England and looks at a broader range of financial assets than PSND ex BoE, including the illiquid financial assets such as the examples listed above. 

This broader statistic also captures a wider range of financial liabilities, such as liabilities for public sector funded pensions and those known as ‘accounts payable’, which covers payments that are owed but haven’t yet been paid by government. 

PSNFL ex, currently £2.4 trillion or equivalent to around 84% of GDP, is £0.2 trillion smaller than PSND ex BoE, as the extra assets included in this measure are larger than the extra liabilities. You can read more about this wider metric in this article. 

The ONS will continue to publish both these and other fiscal metrics, all produced independently and in line with international statistical guidance.