In 1981 the UK government implemented a rule which still applies to this day. One which is not legally binding but which every chancellor has obeyed religiously ever since. One which was not economically necessary, but ideologically driven, and which greatly restricts the UK economy - limiting our ability to pay for the NHS, upgrade national infrastructure, provide public services and offer vital investment in renewable energy.

That rule is the Full Funding Rule. 

How It Works

This rule enforces the idea of 'balancing the books' by requiring the Treasury to issue bonds equal to any deficit spending. So whenever the government spends more than it collects in taxes, it must offer bonds to private investors at attractive interest rates to "borrow back" that same amount. This is the actual cause of our national ‘debt’. This is the interest payments that politicians across the spectrum - from Rory Stewart to Rachel Reeves - declare as unsustainable, as a constraint on what we can afford. It is not a necessary part of the government spending process. It was introduced by Chancellor Geoffrey Howe in 1981 as part of the monetarist revolution - the belief that markets should discipline government spending, not voters.

Before 1981

We still had bond issuance, but it was discretionary. Bonds served purposes like managing inflation or providing safe savings vehicles. They weren't required to "enable" spending - because the government, as currency issuer, doesn't need to borrow its own money to spend it.
The government created money when it spent. It withdrew money when it taxed. The deficit was simply the gap between the two - an accounting identity, not a debt requiring private financing.

After 1981

Every pound of deficit spending must now be matched by a pound of bonds issued to private investors. We can't build council housing, expand the NHS, or invest in renewable energy without first convincing bondholders it's worth their while to lend us our own money back.

As economist Richard Murphy explains in his glossary, this rule requires:

"the UK government to 'fully fund' any fiscal deficit by issuing an equivalent amount of government bonds (gilts and Treasury Bills) to the private sector."

Translation: If the government spends £100 billion more than it collects in taxes, it must issue £100 billion worth of bonds to private investors.

Why does this matter? 

Because the UK government creates money. The Bank of England is government-owned. When the government spends, the Bank of England credits accounts - money appears. When you pay taxes, money disappears. That's how a currency-issuing government works. Implementing this rule imposes artificial constraints on our economic sovereignty. Instead of spending money on democratically chosen, properly planned policies, we're required to seek approval from bond markets. We can only implement policies if bondholders find them attractive investments.
The result? Markets veto democratic priorities. And as a reward for this gatekeeping power, wealthy investors collect £106bn every year. Meanwhile we're told we "can't afford" public investment - not because we lack workers, materials, or energy, but because we've made ourselves dependent on private finance to access our own currency.

The Hypocrisy

So when you see someone like Rory Stewart complaining that the interest on UK debt is too high, that we need to cut spending, balance the budget, live within our means, remember that this was a political choice by Thatcher, by Geoffrey Howe and others in the conservative government. Remember that the problem isn't the spending, it's that they chose to link government spending and debt, creating interest obligations that don't need to exist.

And even if we accept the current system and play under their artificial rule, there's no risk of the UK defaulting on its debt. We issue our own currency. We can always make the payments. The constraint isn't financial - it's political. Stewart and others use the interest payments they created as justification for cutting public services.

If they were genuinely concerned about interest costs, the solution is simple: stop following the Full Funding Rule. Stop requiring bond issuance to match deficit spending. They choose not to - because the rule serves its real purpose perfectly: constraining democratic decision-making while enriching bondholders.

The Bottom Line

The problem isn't government excess. It's that they decided to create a spending constraint that does not need to exist - one that hands veto power to bond markets while generating £106bn per year in interest payments to wealthy investors.

This is a prioritisation of wealth over people, of capital over workers. They are more concerned about keeping bond markets happy than about the people who vote them into power.

If we're truly serious about "taking back control", we should start with taking back control of our own currency.