Forecasting public financial institutions

Public financial institutions (PuFins) are publicly funded bodies set up to invest in and manage financial assets – such as loans and equity investments – and provide guarantees, to support specific policy objectives. The Treasury has designated six PuFins: the Student Loans Company,¹ the National Wealth Fund, UK Export Finance, the British Business Bank, British International Investments and the National Housing Bank. Great British Energy is being considered for designation by the Treasury. The PuFins operate across different sectors and have differing funding structures, but the broad objective of each is to provide expertise which reduces the risks associated with delivering large and complex financial transactions. Over the past couple of years the Government has announced significant increases to the funding allocated to the PuFins.² The Treasury’s Financial Transaction Control Framework specifies the guidelines and risk management processes PuFins must adhere to.

In October 2024 the Government announced a new fiscal rule which targets public sector net financial liabilities (PSNFL) falling as a share of GDP. PSNFL is a measure of the public sector balance sheet which includes financial liabilities and both liquid and non-liquid financial assets, such as loans and equity investments. These non-liquid financial assets are not counted in public sector net debt (PSND). This creates a risk that policy-makers could be incentivised to use financing mechanisms such as loans and equity to meet a given policy objective, even if this is not the best value for money mechanism, because they do not increase PSNFL by as much as direct government spending. It is therefore important that in our forecasts we carefully assess, capture and monitor the risks associated with these incentives. This article describes how we do this in relation to the loans, equity investments and guarantees provided by the PuFins.

Since November 2025 we have fully captured the activities of the PuFins on public sector net borrowing (PSNB), PSNFL and PSND. Table 1 shows the combined impact of the institutions on each in our March 2026 forecast:

• Public sector net borrowing is reduced in each year by the direct activities of the PuFins, by £0.9 billion in 2025-26 and £1.5 billion in 2030-31. This is driven by rising interest income from loans made by PuFins, dividend income from their equity investments, and fee income charged on the guarantees which they provide. These sources of income currently exceed the estimated costs to PuFins of loan write-offs and calls on guarantees.  However, this does not include the increase in PSNB due to the debt interest costs of the financing of these loans and equity investments, which is currently estimated to be approximately £1.5 billion to £3 billion per year.
• Public sector net financial liabilities are reduced in each year by the activities of PuFins, by £1 billion in 2025-26 and by £1.8 billion in 2030-31. The value of new assets acquired by PuFins in any year is initially offset in PSNFL by the value of the liabilities incurred to finance their acquisition. Over time there are small ongoing improvements in PSNFL because equity investment values are assumed to rise. Aside from this effect, PSNFL is driven by the same factors as drive the effect on PSNB.
• Public sector net debt is increased annually by the activities of PuFins, by £3 billion in 2025-26, rising to £6.6 billion in 2027-28, before falling to £1.2 billion in 2030-31. Only the liabilities incurred to finance the loans and equity investments are recognised in PSND, and – unlike in PSNFL – not the financial assets acquired. These liabilities therefore increase PSND each year with the impact lower in the final two years of the forecast as some of the institutions approach their funding limits, restricting the acquisition of new assets.

Table 1: Direct effects of public financial institutions on fiscal aggregates

There are several risks and uncertainties associated with forecasting PuFins, which are common across institutions:

• Some of the PuFins are newly formed and nearly all of them have recently received large increases in funding over the period covered by the July 2025 Spending Review, so there is uncertainty regarding how they will use this funding.
• Their funding capacity is largely set via the spending review process, meaning that in 2030-31 (the year of our most recent medium-term forecast that sits beyond the 2025 Spending Review) there is increased uncertainty.
• The PuFins typically record and plan their activities using a different accounting basis to the National Accounts framework which underpins ONS recording of outturn and OBR forecasts. We, therefore, work with the PuFins to translate their plans to a National Accounts basis to produce our forecast.

Beyond these cross-cutting risks there are specific uncertainties related to forecasting the three main assets or financial transactions associated with the PuFins:

• Loans are typically recorded by the ONS at nominal value – which is the original value of the loan adjusted for any subsequent repayments or accrued interest. This creates a risk to the forecast as it assumes full repayment and makes no adjustment for the possibility of a default on part or all of the loan. In some cases, for example for student loans, this risk is addressed by the ONS ‘partitioning’ loans by recording as spending the value of expected default or ‘write-offs’ at outlay, a process we can then replicate in our forecast.³ But where this is not the case we address this risk in our forecast by scrutinising the loan book of the PuFin and making our own assumptions on the possible extent and timing of any such write-offs.⁴ Where PuFins and loan streams are new and there is limited data to inform these write-off assumptions, there is a greater risk that write-offs will differ from our forecast. The possibility of macroeconomic shocks adds to this risk, particularly if it affects a sector to which a PuFin is significantly exposed – such as the National Housing Bank’s exposure to the UK property market.
• Equity assets, captured at market value to reflect their fair value when traded on public markets, are assumed to rise in value across each year of our March 2026 forecast, which reduces PSNFL. This is uncertain given some assets are traded infrequently, meaning a market price is hard to forecast, and market value is often partly determined by economic conditions, so is susceptible to economic shocks.
• Calls on guarantees, where PuFins are required to cover the cost of write-offs of eligible loans, are recorded similarly to loan write-offs and so increase PSNB, PSNFL and PSND. Our March 2026 forecast assumes that there will be very limited calls, however similar risks apply to those outlined for loan write-offs and are amplified where large guarantees are provided to a single or limited number of entities.⁵

The risks posed to the fiscal outlook by the uncertainties relating to PuFins will increase as their balance sheets expand. We will therefore continue to carefully assess and monitor the risks. To do this we work closely with UK Government Investments – which monitors these institutions in its Financial Investment Report – along with the ONS, and each of the PuFins, to ensure we are accurately capturing their activities in our forecasts.

Acknowledgements

We are grateful for the engagement, expertise and insights provided by colleagues from the OBR, the Office for National Statistics (ONS) and UK Government Investments (UKGI) in compiling this article.

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