Balance sheet impacts of the 2025 Spending Review

The 2025 Spending Review increased the envelope for departmental financial transactions relative to the assumptions in our March 2025 forecast. In this box, we explored how this funding has been allocated and how this may impact future OBR work.

This box is based on HM Treasury data from July 2025 .

In the 2025 Spending Review (SR), published on 11 June, the Government increased the envelope for departmental financial transactions (the principal funding allocated for lending by central government, aside from student loans) by a total of £9.6 billion for the years 2026-27 to 2029-30, relative to the assumptions in our March 2025 forecast. Within PSNFL any loan assets acquired will largely offset the debt liabilities issued to fund the loan outlay, with the degree of
this offset depending on the proportion of the loan which is eventually repaid. The Government’s decision to target PSNFL as its debt rule therefore creates an additional incentive for the acquisition of loan and other financial assets by the public sector, relative to previous debt rules which have not counted these assets.

This uplift to funding brings the total envelope currently allocated for departments to extend loans and acquire equity assets to £26.4 billion over the five years between 2025-26 and 2029- 30 (Table 3.A). Of this, a total of £9.2 billion has been allocated to the Department for Energy Security and Net Zero, £5.8 billion to the Ministry for Housing, Communities and Local Government, and £3.5 billion to the Department for Business and Trade.

Table A: Departmental financial transactions envelopes

Table 3.A showing departmental financial transactions envelopes.

Around 50 per cent of this allocation goes to entities that are, or will be, designated as public financial institutions and so are intended to be compliant with the financial transactions control framework.a This includes:

  • Current public financial institutions, such as the British Business Bank, which receives a total of £2.5 billion; and
  • Public financial institutions that are due to be designated in the future, such as the National Housing Bank (NHB, part of Homes England) and the investment arm of Great British Energy (GB Energy), which will receive £5.1 billion and £4.0 billion respectively.

The other half of the envelope has been allocated to departments with no in-house public financial institution vehicle, though the Government has stated that it will work with departments to ensure that programmes that are ‘large-scale, complex or high-risk’ are delivered by the public financial institutions of other departmental groups.

Other public financial institutions, such as the National Wealth Fund (NWF) and UK Export Finance (UKEF), are not funded from within departmental expenditure limits (DEL) so receive no additional funding as part of the SR. In previous forecasts we have captured the activities of DEL-funded public financial institutions via our top-down DEL net lending forecast, while the NWF and UKEF have been forecast individually and in greater detail.b In our next EFO we will incorporate the effects of the additional SR funding and standardise our approach to forecasting the activities of public financial institutions. This will require more detailed information on:

  • Lending, including loans extended, repayments and any write-downs in the loan value. The losses from write-downs will increase both PSNB and PSNFL by equal amounts. This might be at the point of issuance or when written off depending on the ONS treatment.
  • Interest income earned on the loans or fee income earned on guarantees by those public financial institutions who also provide guarantees to the private sector. This income would reduce both PSNB and PSNFL by equal amounts.

The Spending Review also expanded the value of guarantees that departments are able to extend by £21.2 billion to £88.0 billion. The bulk of this capacity is held by UK Export Finance (£70.0 billion) with the rest allocated to the National Wealth Fund (£10 billion) and the British Business Bank (£8.0 billion). The impact of these guarantees on fiscal aggregates will depend on the value of calls on the guarantees and fees earned. We will also monitor these flows as part of our enhanced scrutiny of the activities of public financial institutions, as outlined above.

This box was originally published in Fiscal risks and sustainability – July 2025

a The published financial transactions control framework sets out that public financial institutions managed in DEL will all seek to generate a return across their financial transactions portfolio of at least the government’s cost of borrowing, while taking on more risk and seeking a lower return than a commercial bank would. Any programmes within their portfolios delivered on behalf of departments that are priced below this level will have the net debt interest costs recognised in their accounts as a subsidy payment from the policy department to the public financial institution.
b This is consistent with our wider approach to forecasting DEL spending items, which is guided by the spending limits set by the Government. For items outside of DEL we are able to forecast in more detail, as spending is usually demand-driven and is not capped at a specific level.