U.K. to change definition of debt so it can add $90 billion more

(ZEROHEDGE) – Back in Sept 2022, the U.K. financial system almost collapsed when the bond market vigilantes woke up from a decade long slumber and in response to the tax-cutting mini-budget by former PM Liz “did not outlast the lettuce” Truss, sent yields soaring, the pound crashing and sparked a firesale of the country’s rate sensitive securities, forcing the BOE to resume QE virtually overnight as a buyer of last resort was desperately needed. It was a vivid reminder just how fake and unstable the global financial system has become if one just pulls the curtain on the unlimited daily supports from central bankers, and better yet, it was a teachable lesson why assets can never again drop: because if they do, it means central banks are no longer micromanaging the entire market and an epic crash is inevitable.

Long story short, the U.K. learned its lesson and the last thing it would ever do again is get perilously close to admitting the truth, which is that it is exclusively reliant on the debt market to fund its marginal deficit spending. Which, however, would mean two things: i) it would somehow have to convince the market it has much more debt capacity than it currently does, i.e. changing the definition of debt, and ii) it would need to actually do the right thing (something it has to do since unlike the US it doesn’t have a reserve currency to punch around) and either boost taxes or cut back spending.

That’s precisely what is about to happen. Chancellor of the Exchequer Rachel Reeves, the U.K.’s equivalent to the Treasury Secretary, has embraced a fiscal overhaul that could allow the UK to borrow as much as £70 billion ($91 billion) more over the next five years by changing the very definition of debt, as the government defended a budget that looks increasingly likely to tax investors.