UK Labour faces criticism over plan to sidestep borrowing limits
Oxford Economics warns that Labour’s proposed ‘Pufins’ scheme to fund infrastructure may expose the UK to higher debt costs and voter backlash.
Andy Burnham and John Healey have been cautioned against a proposed accounting manoeuvre that would let the government increase borrowing without breaching fiscal rules. The plan, outlined by the Labour administration, would channel extra debt through entities such as the British Business Bank and the National Wealth Fund, classifying the borrowing as coming from public financial institutions, a shortcut known as ‘Pufins’.
Analysts at Oxford Economics say the move could backfire in a bond market that is already volatile. Higher long‑term gilt yields, driven by a global sell‑off in sovereign debt, could add up to £9 billion to the cost of servicing the extra debt.
“Using an accounting trick to loosen policy in a significant way would be risky given the current febrile bond market backdrop,” said Andrew Goodwin, senior researcher at Oxford Economics.
Goodwin added that any additional borrowing would still have to be financed through higher gilt issuance, putting further pressure on the market. He also warned that the approach could undermine Healey’s pledge of fiscal prudence, especially as many of the tax rises announced by Rachel Reeves last year are set to take effect later in the parliamentary term.
Market and voter reaction
Bond traders are already showing heightened vigilance to any sign of extra gilt supply. A Freshwater Strategy poll conducted between 4 and 6 September 2026 found that 73 per cent of respondents were worried about rising interest rates on long‑term government borrowing. While 62 per cent said the government should cut borrowing, 23 per cent argued that higher borrowing was acceptable if it avoided spending cuts or tax hikes.
The same survey revealed that a majority of voters expect the government to reduce borrowing, with 40 per cent favouring cuts to public spending and 22 per cent supporting higher taxes. The public’s concern is amplified by projections that debt‑interest payments could reach £137 billion by 2030, more than double the defence budget and higher than education spending.
What comes next
Labour’s first budget will be a litmus test for the credibility of its fiscal stance. If the administration proceeds with the Pufins route, markets may demand higher yields on new gilts, raising the cost of borrowing for the whole economy. Conversely, a decision to keep borrowing within the official limits could reassure investors but limit the scale of infrastructure and housing projects the party has promised.
Business leaders have already pressed Healey for cost cuts ahead of the October budget, signalling that pressure will come from both the financial markets and the private sector. How the government balances these competing demands will shape the UK’s fiscal outlook for the rest of the decade.
