Public sector finances, UK: August 2019

• Borrowing (public sector net borrowing excluding public sector banks, PSNB ex) in August 2019 was £6.4 billion, £0.5 billion less than in August 2018.

• Borrowing in the current financial year-to-date (April 2019 to August 2019) was £31.2 billion, £6.8 billion more than in the same period last year.

• Debt (public sector net debt excluding public sector banks, PSND ex) at the end of August 2019 was £1,779.9 billion (or 80.9% of gross domestic product, GDP), an increase of £24.5 billion (or a decrease of 1.5 percentage points of GDP) on August 2018.

• Debt at the end of August 2019 excluding the Bank of England (mainly quantitative easing) was £1,598.7 billion (or 72.7% of GDP); this is an increase of £37.4 billion (or a decrease of 0.6 percentage points of GDP) on August 2018.

• Central government net cash requirement was £18.1 billion in the current financial year-to-date; this is £13.7 billion more than in the same period last year.

• Central government net cash requirement excluding both UK Asset Resolution Ltd and Network Rail was £17.9 billion in the current financial year-to-date; this is £12.7 billion more than in the same period last year.

• In the latest full financial year (April 2018 to March 2019), the overall impact of the methodology and data changes introduced this month have led to a £17.8 billion increase in borrowing and a £29.3 billion decrease in net debt at the end of March 2019 but have had no effect on net cash requirement.

• The revised treatment of student loans following methodology and data changes increased borrowing by £12.4 billion but had had no impact on net debt.

• The revised treatment of pensions following methodology and data changes increased borrowing by £1.3 billion and reduced debt by £28.6 billion.

• Corporation Tax data updates following methodology and data changes increased borrowing by £2.6 billion but had had no impact on net debt.

In the UK, the public sector consists of six sub-sectors: central government, local government, public non-financial corporations, public sector pensions, the Bank of England and public financial corporations (or public sector banks).

Unless otherwise stated, the figures quoted in this bulletin exclude public sector banks (that is, currently only Royal Bank of Scotland, RBS), as the reported position of debt (and to a lesser extent borrowing) would be distorted by the inclusion of RBS’s balance sheet (and transactions). This is because the government does not need to borrow to fund the debt of RBS, nor would surpluses achieved by RBS be passed on to the government, other than through any dividends paid as a result of the government equity holdings.

Public sector net borrowing excluding public sector banks (PSNB ex) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment (capital spending less capital receipts)). Public sector net borrowing (PSNB) is often referred to by commentators as “the deficit”.

The public sector net cash requirement (PSNCR) represents the cash needed to be raised from the financial markets over a period of time to finance the government’s activities. This can be close to the deficit for the same period; however, there are some transactions, for example, loans to the private sector, that need to be financed but do not contribute to the deficit. It is also close but not identical to the changes in the level of net debt between two points in time.

Public sector net debt excluding public sector banks (PSND ex) represents the amount of money the public sector owes to private sector organisations including overseas institutions, largely as a result of issuing gilts and Treasury Bills, less the amount of cash and other short-term assets it holds. Public sector net debt is often referred to by commentators as “the national debt”.

While borrowing (or the deficit) represents the difference between total spending and receipts over a period of time, debt represents the total amount of money owed at a point in time.

The national debt has been built up by successive government administrations over many years. When the government borrows (that is, runs a deficit), this normally adds to the debt total. So reducing the deficit is not the same as reducing the debt.

This section presents information on aspects of data or methodology that have been introduced or improved since the publication of the previous bulletin (21 August 2019), along with supporting information that users may find useful.

To main consistency in our presentation, we attempt to package together methodology improvements and substantial data changes. We usually introduce these changes in the August dataset published each September. These methodology and data changes are applied consistently throughout our time series enabling comparisons to earlier data points.

Section 10 explains the data and methodology changes introduced in September 2019 and presents the resulting impact on public sector net borrowing (PSNB), net debt and net financial liabilities. What follows is a summary of each.

Public sector pensions

We have adopted a new, gross presentation of funded employment-related pensions. This change, predominantly presentational in nature, has greatly increased the volume of assets recorded on the public sector balance sheet but consolidated many inter-public sector balances and transactions. We now also include the Pension Protection Fund within the public sector boundary. These changes have reduced public sector net debt at the end of March 2019 by £28.6 billion, reflecting the consolidation of gilts and recognition of liquid assets held by the public pension schemes.

Student loans

Improvements in the statistical treatment of student loans have added £12.4 billion to net borrowing in the financial year ending March 2019. Outlays are no longer all treated as conventional loans. Instead, we split lending into two components: a genuine loan to students and government spending. This new approach recognises that a significant proportion of student loan debt will never be repaid. We record government expenditure related to the expected cancellation of student loans in the period that loans are issued. Further, government revenue no longer includes interest accrued that will never be paid.

Capital consumption

In June 2019, we announced our intention to introduce a number of improvements to the estimation of capital stocks and therefore the consumption of fixed capital in September 2019. Any updates to capital consumption are PSNB neutral.

Tables 4, 5 and 6 present our latest estimates of PSNB, net debt and net financial liabilities with the impacts of changes to the accounting for student loans, public sector pensions and capital consumption introduced in September 2019 removed.

Impact of student loans, public sector-funded pension scheme and capital consumption changes introduced in September 2019: Appendix G expands this presentation to include the impact on current budget deficit and net investment and also provides additional quarterly and monthly time series. We plan to continue publishing updated versions of these tables until the end of the current financial year (April 2020).

The revised data for capital consumption introduced this month has had no impact on net borrowing, net debt or net cash requirement.

Value Added Tax refunds

Historical improvements to the accounting of Value Added Tax (VAT) refunds have been introduced this month. Like changes to capital consumption, these changes are borrowing neutral, increasing central government taxes on production and current expenditure by equal and offsetting amounts. These changes also have no impact on net debt or net cash requirement.

Corporation Tax receipts and Corporation Tax credits

On 24 September 2019, HM Revenue and Customs (HMRC) published corrected data for Corporation Tax receipts and Corporation Tax credits. These latest figures have been used to compile the data in this release.

The error mainly relates to the treatment of Corporation Tax credits, which are included within total Corporation Tax receipts as well as within total central government expenditure.

HMRC recently identified that the Corporation Tax credits had erroneously been included twice within total Corporation Tax receipts. Although this problem affected the data from the financial year ending March 2011 onwards, the impact on public sector net borrowing is for a longer time period, beginning from the financial year ending March 2008. This is because the reported data are time-adjusted to ensure consistency with the National Accounts statistical framework.

Corporation Tax credits have generally increased during the period from 2011 onwards and so the impact of the correction is larger in recent years. For example, for the latest full financial year ending March 2019, total Corporation Tax receipts have been reduced by £2.6 billion and public sector net borrowing has been increased by the same amount.

Some other improvements to Corporation Tax data have also been implemented in this release, but these have a smaller impact and only affect earlier years.

Self-assessed Income Tax

In both January and (to a lesser extent) July, accrued receipts are particularly high owing to receipts from self-assessed Income Tax.

This month, receipts from self-assessed Income Tax were £1.7 billion, an increase of £0.4 billion on August 2018. This is the highest level of August self-assessed Income Tax receipts since 2009.

As well as primarily affecting January and July receipts, the revenue raised through self-assessed Income Tax also tends to lead to higher receipts in the following month (February and August respectively), although to a lesser degree.

It is advisable to look at the combined self-assessed Income Tax receipts for both July and August together when drawing conclusions from year-on-year comparisons. The combined self-assessed Income Tax receipts for both July and August 2019 together were £11.1 billion, an increase of £0.7 billion on the same period in 2018.

Winter fuel payments

Improvements to the recording of winter fuel payments move the associated expenditure between November to September within the same financial year, increasing PSNB in September and reducing it by an equal and offsetting amount in November. These changes have no impact on the full financial year net borrowing position or any impact on net debt or net cash requirement.  

In August 2019, the public sector spent more money than it received in taxes and other income, meaning it had to borrow £6.4 billion, £0.5 billion less than in August 2018. Of this £6.4 billion, central government borrowed £4.4 billion, local government borrowed £2.8 billion, while the Bank of England recorded a surplus of £0.9 billion.

Figure 1 summarises public sector net borrowing (PSNB) by sub-sector in August 2019 and compares this with the equivalent measures in the same month a year earlier (August 2018). This presentation splits public sector net borrowing excluding public sector banks (PSNB ex) into each of its five sub-sectors: central government, local government,non-financial public corporations, public sector pensions and the Bank of England.

Central government receipts in August 2019 increased by £1.9 billion (or 3.4%), compared with August 2018, to £59.2 billion, while total central government expenditure increased by £0.4 billion (or 0.7%) to £61.2 billion.

Of this £61.2 billion, £58.6 billion related to the cost of the “day-to-day” activities of the public sector (the current expenditure), while £2.6 billion was capital spending (or net investment), such as on infrastructure.

Income-related revenue increased by £1.5 billion, with self-assessed Income Tax and National Insurance contributions (NICs) increasing by £0.4 billion and £0.6 billion, respectively, compared with August 2018.

Accrued Value Added Tax (VAT) and Corporation Tax receipts increased by £0.4 billion and £0.1 billion over the same period. However, it is important to note that both of these taxes contain forecast cash receipts data and are liable to revision as actual cash receipts data are received.

In the same period, departmental expenditure on goods and services increased by £1.8 billion, compared with August 2018, including a £0.5 billion increase in expenditure on staff costs and a £0.9 billion increase in the purchase of goods and services.

Interest payments on the government’s outstanding debt decreased by £0.9 billion, compared with August 2018, largely resulting from movements in the Retail Prices Index (RPI) to which index-linked bonds are pegged. The relationship between the RPI and the valuation index-linked bonds is explored further in the Public sector finances Quality and Methodology Information Report.

This month, we have introduced local government budget data for England, Wales and Scotland for the financial year ending (FYE) March 2020 for the first time, replacing initial estimates based on the Office for Budget Responsibility (OBR) forecasts.

Public corporations data for this period remain initial estimates, based on the OBR forecasts. Current and capital transfers between these sectors and central government are based on administrative data supplied by HM Treasury.

Pensions data for the current financial year are our estimates based on the latest available data. Some of these estimates rely on actuarial modelling – a complex process that most public sector schemes conduct every three to four years. Until such valuations become available, we forecast the change in pension liability using our knowledge of the economic climate. Pensions in the public sector finances: a methodological guide outlines both the theory and practice behind our calculation of pension scheme estimates.

Figure 1: How each sector contributes to the growth in monthly borrowing

August 2019, compared with August 2018, UK

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNB ex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. PCNB – Non-financial public corporations’ net borrowing.
5. BoENB – Bank of England net borrowing.
6. L&P – Land and property.
7. I&W – Income and wealth.
8. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
9. NICs – National Insurance contributions.
10. o/w – Of which.

Download this image Figure 1: How each sector contributes to the growth in monthly borrowing

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Because of the volatility of the monthly data, the cumulative financial year-to-date borrowing figures often provide a better indication of the position of the public finances than the individual months’ figures.

In the current financial year-to-date (April 2019 to August 2019), public sector spending exceeded the money received in taxes and other income. This meant the public sector had to borrow £31.2 billion; that is, £6.8 billion more than the same period last year.

Of the £31.2 billion borrowed by the public sector in this period, £15.7 billion related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £15.5 billion was capital spending (or net investment), such as on infrastructure.

Figure 2 presents both monthly and cumulative public sector net borrowing excluding public sector banks (PSNB ex) in the current financial year-to-date (April 2019 to August 2019) and compares these with the same period in the previous financial year.

The OBR expects borrowing to increase to £29.3 billion in the FYE March 2020, with a further increase of £11.2 billion owing to the revised treatment of student loans introduced in September 2019.

Figure 3 summarises the contributions of each sub-sector to PSNB ex in the latest financial year-to-date (April 2019 to August 2019) and compares these with the same period last year.

The difference between central government’s income and spending makes the largest contribution to the amount borrowed by the public sector.

In the latest financial year-to-date, central government received £305.4 billion in receipts, including £226.0 billion in taxes. This was 2.1% more than in the same period last year.

Over the same period, central government spent £325.1 billion, an increase of 4.1%. Of this amount, around two-thirds was spent by central government departments (Education, Defence, Health and Social Care); just below one-third was spent on social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay); and the remainder was spent on capital investment and interest on the government’s outstanding debt.

Figure 3: How each sector contributes to the growth in borrowing

Current financial year-to-date (April 2019 to August 2019) compared with the previous financial year-to-date, UK

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNB ex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. PCNB – Non-financial public corporations’ net borrowing.
5. BoENB – Bank of England net borrowing.
6. L&P – Land and property.
7. I&W – Income and wealth.
8. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
9. NICs – National Insurance contributions.
10. o/w – Of which.

Download this image Figure 3: How each sector contributes to the growth in borrowing

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Figure 4 illustrates that annual borrowing has generally been falling since the peak in the FYE March 2010 (April 2009 to March 2010).

In the latest full financial year (April 2018 to March 2019), the £41.4 billion (or 1.9% of gross domestic product, GDP) borrowed by the public sector was around a quarter (26.1%) of the amount seen in the FYE March 2010, when borrowing was £158.3 billion (or 10.2% of GDP).

Figure 4: Borrowing has generally been falling since its peak in the financial year ending March 2010

Public sector net borrowing (excluding public sector banks), UK, April 1993 to July 2019

Source: Office for National Statistics – Public sector finances

Notes:

1. The OBR full financial year forecast of PSNB ex for the FYE March 2020 (March 2019 EFO). This forecast does not include the impact of change in treatment of student loans.
2. Financial year 2018 to 2019 represents the FYE 2019 (April 2018 to March 2019).
3. YTD equals year-to-date (April to August).
4. The OBR full financial year forecast of PSNB ex for the FYE March 2020 with a provisional forecast of the impact of the change in treatment of student loans (March 2019 EFO). This forecast includes the impact of student loan sales.

Download this image Figure 4: Borrowing has generally been falling since its peak in the financial year ending March 2010

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Public sector net debt excluding public sector banks (PSND ex) represents the amount of money the public sector owes to private sector organisations (including overseas institutions), which has built up by successive government administrations over many years.

When the government borrows, this normally adds to the debt total, but it is important to remember that reducing the deficit is not the same as reducing the debt.

At the end of August 2019, the amount of money owed by the public sector to the private sector stood at just below £1.8 trillion (Figure 5), which equates to 80.9% of the value of all the goods and services currently produced by the UK economy in a year (or gross domestic product, GDP).

Figure 5: Debt as a percentage of gross domestic product has been falling in recent financial years

Public sector net debt (excluding public sector banks), UK, March 1994 to the end of August 2019

Source: Office for National Statistics – Public sector finances

Notes:

1. Includes Asset Purchase Facility (APF), which includes the Term Funding Scheme (TFS).
2. PSND ex is the combination of PSND ex Bank of England plus Bank of England contribution to PSND ex.

Download this image Figure 5: Debt as a percentage of gross domestic product has been falling in recent financial years

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The Bank of England’s contribution to net debt is largely a product of their quantitative easing measures, namely the Bank of England Asset Purchase Facility Fund (BoE APFF) and the Term Funding Scheme (TFS). If we were to exclude the Bank of England from our calculation of PSND ex, it would reduce by £181.3 billion, from £1,779.9 billion to £1,598.7 billion, or from 80.9% of GDP to 72.7%.

Figure 6 breaks down outstanding public sector net debt (PSND) at the end of August 2019 into the sub-sectors of the public sector. In addition to PSND ex, this presentation includes the effect of public sector banks on debt.

Figure 7 incorporates the borrowing components detailed in Figure 2 to illustrate how the differences between income and spending (both current and capital) have led to the accumulation of debt in the current financial year-to-date (April 2019 to August 2019).

The reconciliation between public sector net borrowing (PSNB) and net cash requirement is presented in more detail in Table REC1 in the Public sector finances tables 1 to 10: Appendix A dataset.

Figure 7: How the differences in expenditure and receipts affect public sector net debt excluding public sector banks, UK

Source: Office for National Statistics – Public sector finances

Notes:

1. Cash transactions in (non-financing) financial assets, which do not impact on net borrowing.
2. Timing differences between cash and accrued data.
3. Revaluation of foreign currency debt (for example, foreign currency) Debt issuances or redemptions above or below debt valuation (for example, bond premia and discounts and capital uplifts). Changes in volume of debt not resulting from transactions (for example, sector reclassification).

Download this image Figure 7: How the differences in expenditure and receipts affect public sector net debt excluding public sector banks, UK

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Revisions can be the result of both updated data sources and methodology changes. This month, revisions to public sector finance statistics are a result of updated data and methodology changes.

Revisions summary

Table 1 shows the revisions to the headline statistics presented in this bulletin compared with those presented in the previous bulletin (published on 21 August 2019).

This month we have introduced substantial methodology and data changes, as detailed in Section 3 and Section 10. These methodology and data changes have been applied consistently throughout our time series enabling comparisons to earlier data points.

Further, this month HM Revenue and Customs (HMRC) published corrected data for Corporation Tax and Corporation Tax credits. The latest figures have been used to compile the data in this release. The impact of this correction extends from the financial year ending (FYE) March 2008 to date. The error mainly relates to the treatment of Corporation Tax credits, which are included within total Corporation Tax receipts as well as within total central government expenditure.

Table 2 summarises how these methodology changes and the correction to corporation tax have contributed to revisions in public sector net borrowing excluding public sector banks (PSNB ex), by comparing the latest estimates with that published in last month’s bulletin (21 August 2019).

Revisions to public sector net borrowing excluding public sector banks in the current financial year-to-date (April to July 2019)

The data for the latest months of every release contain a degree of forecasts. The initial outturn estimates for the early months of the financial year, particularly April, contain more forecast data than other months. This is because profiles of tax receipts, along with departmental and local government spending, are still provisional. This means that the data for these months are typically more prone to revision than other months and can be subject to sizeable revisions in later months.

PSNB ex in the current financial year-to-date (April to July 2019) has been revised up by £8.7 billion compared with figures presented in the previous bulletin (published on 21 August 2019). Of this £8.7 billion revision, £7.3 billion is attributable to central government, £0.9 billion to local government and £0.4 billion to the inclusion of the new public sector pensions sector within the public sector borrowing boundary.

The £7.3 billion revision to the central government sector is due largely to the change in treatment of student loans and the correction of Corporation Tax data. The new treatment of student loans added £5.6 billion to current expenditure, while £1.9 billion reduction in accrued Corporation Tax receipts reduced revenue. These upward pressures on borrowing were partially offset by many smaller data revisions across the period amounting to £0.2 billion, as latest central government spending data were included, to align with published departmental resource accounts.

This month we have introduced local government budget data for England, Scotland and Wales for the financial year ending March 2020 for the first time, replacing initial estimates based on the Office for Budget Responsibility (OBR) forecasts. The inclusion of these new data have increased our provisional estimate of local government net borrowing by £0.9 billion in the current financial year-to-date.

Figure 8 breaks down the revision to PSNB ex in the current financial year-to-date by each of its five sub-sectors: central government, local government, non-financial public corporations, public sector pensions and the Bank of England.

Figure 8: How each element of the public sector contributes to the revision in financial year-to-date net borrowing (PSNB ex)

Latest data covering the months of April to July 2019, compared with that presented in the previous bulletin (21 August 2019), UK

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNB ex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. PCNB – Non-financial public corporations' net borrowing.
5. BoENB – Bank of England net borrowing.
6. L&P – Land and property.
7. I&W – Income and wealth. 8 Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
8. NICs – National insurance contributions.
9. o/w – Of which.

Download this image Figure 8: How each element of the public sector contributes to the revision in financial year-to-date net borrowing (PSNB ex)

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Revisions to public sector net debt excluding public sector banks

Public sector net debt excluding public sector banks (PSND ex) at the end of August 2019 has been revised down by £30.1 billion compared with that presented in the previous bulletin (published on 21 August 2019). This decrease in PSND ex is largely because of the inclusion of public sector pensions within the public sector borrowing boundary, reducing debt by £28.6 billion, reflecting the consolidation of gilts and recognition of liquid assets held by the public pension schemes. The remaining £1.5 billion reduction in the net debt estimate is almost entirely a result of the updated local government data.

The independent Office for Budget Responsibility (OBR) is responsible for the production of official forecasts for the government. These forecasts are usually produced twice a year, in spring and autumn.

On 13 March 2019, the government published its Spring Statement 2019. On the same day, the OBR published updated forecasts for debt and borrowing, on which the Spring Statement 2019 is based.

The OBR forecasts used in this bulletin are based on those published in its Economic and fiscal outlook – March 2019. In this publication, the OBR’s forecast public sector net borrowing excluding public sector banks (PSNB ex) in the financial year ending (FYE) March 2019 to be £22.8 billion, with an expectation that it would increase to £29.3 billion in the FYE March 2020.

These March 2019 OBR forecasts do not include estimates of the revisions made in September 2019 for student loans and pensions data. The OBR intends to reflect these changes in their next fiscal forecast.

In Chart B.4 of the Economic and fiscal outlook – March 2019 (Excel, 937 KB), the OBR estimates that the inclusion of student loans in the public sector would add £11.2 billion to public sector net borrowing (PSNB) in the FYE March 2020, giving an expected total PSNB of £40.6 billion for the current financial year. However, this is an initial forecast and does not include the impact of student loan sales as this methodology was yet to be determined at the time the forecast was made.

Table 3 compares the current outturn estimates for each of our main public sector excluding public sector banks aggregates for the current financial year-to-date with corresponding OBR forecasts for the following financial year. The forecasts used in this table are consistent with the March 2019 OBR forecasts and do not include estimates of the revisions made in September 2019 for student loans and pensions data. It also compares the latest full financial year (April 2018 to March 2019) outturn estimates with those of the previous financial year.

Caution should be taken when comparing public sector finances data with the OBR figures for the full financial year. Data are not finalised until some time after the financial year ends, with initial estimates made soon after the end of the financial year often subject to sizeable revisions in later months as forecasts are replaced with audited outturn data. There may also be known methodological differences between the OBR forecasts and outturn data.

Government Finance Statistics

The UK government debt and deficit statistical bulletin is published quarterly (in January, April, July and December each year), to coincide with when the UK and other EU member states are required to report on their deficit (or net borrowing) and national debt to the European Commission.

On 17 July 2019, we published UK government debt and deficit: March 2019, consistent with Public sector finances, UK: May 2019 (published on 21 June 2019). In this publication, we stated that:

• general government gross debt was £1,821.3 billion at the end of the financial year ending (FYE) March 2019, equivalent to 85.2% of gross domestic product (GDP); this is 25.2 percentage points above the Maastricht reference value of 60%

• general government deficit (or net borrowing) was £25.5 billion in the FYE March 2019, equivalent to 1.2% of GDP; this is 1.8 percentage points below the Maastricht reference value of 3%

This month, we have introduced a number of methodology and data changes (see Section 3 and Section 10) and as a result we have revised our previously published estimates of both debt and deficit. This bulletin presents:

• general government gross debt was £1,821.9 billion at the end of the FYE March 2019, equivalent to 85.3% of GDP

• general government deficit (or net borrowing) was £41.5 billion in the FYE March 2019, equivalent to 1.9% of GDP

It is important to note that the GDP measure used as the denominator in the calculation of the debt ratios in the UK government debt and deficit statistical bulletin differs from that used within the public sector finances statistical bulletin.

International Monetary Fund’s Government Finance Statistics framework

In May 2019, we published supplementary tables compliant with the International Monetary Fund’s (IMF) Government Finance Statistics Framework for the first time.

These new supplementary tables, International Monetary Fund’s Government Finance Statistics Framework in the public sector finances: Appendix E, present the public sector balance sheet, statement of operations and statement of other economic flows. We intend to further refine these statements and further align the underlying methodology with the Government Finance Statistics Manual 2014. We intend to update these tables on 22 October 2019.

Our methodological article, International Monetary Fund’s Government Finance Statistics framework in the public sector finances, accompanies the tables. It provides an overview of the IMF’s framework, explains differences to the national accounts framework, provides information on data sources and quality, and details our future plans.

The Public sector finances Quality and Methodology Information Report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• the uses and users of the data

• how the output was created

• the quality of the output including the accuracy of the data

The public sector finances methodological guide provides comprehensive contextual and methodological information concerning the monthly public sector finances statistical bulletin.

The guide sets out the conceptual and fiscal policy context for the bulletin, identifies the main fiscal measures, and explains how these are derived and interrelated. Additionally, it details the data sources used to compile the monthly estimates of the fiscal position.

Local government forecasts

In recent years, planned expenditure initially reported in local authority budgets has systematically been higher than the final outturn expenditure reported in the audited accounts. We therefore include adjustments to reduce the amounts reported at the budget stage.

In September 2019, we have incorporated provisional outturn data and removed our underspend adjustment for current expenditure in England over the financial year ending (FYE) March 2019, along with our underspend adjustment for both England and Scotland capital expenditure over the same period. The only adjustment remaining for the FYE March 2019 is for Wales capital expenditure (£0.2 billion).

For the FYE March 2020, we have introduced a £1.2 billion downwards adjustment to England current expenditure, along with £0.7 billion and £0.2 billion adjustments to Scotland and Wales capital expenditure respectively.

Further information on these and additional adjustments can be found in the Public sector finances Quality and Methodology Information Report.

This section explains the data or methodology changes introduced in September 2019 and presents the resulting revisions to public sector net borrowing (PSNB), net debt and net financial liabilities.

Presentation of pension data

In September 2019, we changed the way we present funded public sector employment-related pension schemes in our public sector finances statistics. We have extended our current presentation, which recognises the public sector’s liability for the pension scheme’s deficit. We now include the pension schemes themselves (and all their assets and liabilities) and the Pension Protection Fund within the public sector boundary.

While this change is mainly focused on presentation, public sector net debt (PSND) at the end of March 2019 has decreased by £28.6 billion as a result of the consolidation of pension schemes’ gilt holdings and liquid assets.

Further, public sector net financial liabilities (PSNFL) have increased by £7.8 billion. Public sector pension schemes’ accounts include their financial liabilities along with both their financial and non-financial assets. However, only financial liabilities and assets are included in PSNFL. This imbalance results in a positive impact on PSNFL by an amount equivalent to the non-financial assets plus the difference between the market value and face values of the central government gilts held by the pension funds. When recognised as a government liability, debt securities are recorded on a face value basis, which represents the amount due to be repaid. However, in the pension funds’ balance sheet, the recording of debt securities issued by the government is done on a market value basis. As a result, the consolidation process is not completely neutral in its impact on PSNFL.

Finally, PSNB has been impacted by two factors. Firstly, a change in pension liability may, in the short term, differ from pension funds’ revenue such as pension contributions and property income receivable. Secondly, the operation of the Pension Protection Fund, which can engage in unbalanced transactions assuming a higher pension liability than the value of the assets transferred to it, can have a pronounced effect in certain years. In combination, these factors have increased PSNB by £1.3 billion in the financial year ending (FYE) March 2019.

Appendix A: Public sector finances tables 1 to 10

We have updated our presentation of PSNB and PSND in Public sector finances tables 1 to 10: Appendix A with additional columns to reflect the introduction of a pensions sector within the public sector boundary.

Table PSA2, Public sector net borrowing: by sector now has an additional column to reflect the pension sector’s contribution to PSNB.

The group of debt tables, PSA8A to D, have been improved to present a more clear path between general government consolidated gross debt and PSND. In summary:

• Table PSA8A remains unchanged in the new presentation; this table summarises the components of general government gross debt as reported by all EU member states to the European Commission

• PSA8B, PSA8D_1 and PSA8D_2 have been replaced by PSA8B_1 and PSA8B_2; these tables follow PSA8A, summarising how public sector net debt is built up from general government gross debt

• Table PSA8C remains unchanged in the new presentation; this table summarises the components of general government liquid assets

These changes have been applied to Public sector finances tables 1 to 10: Appendix A and the tables that accompany the PDF version of the public sector finances statistical bulletin.

Public sector borrowing by sub-sector

Our Public sector finances borrowing by sub-sector presentation released on 25 October 2019 has been extended to include the pensions sub-sector.

Presentation of student loans

In December 2018, we announced a decision to replace the treatment of student loans in the public sector finances statistics. In June 2019, we published a methodological guide for the new approach to recording student loans, confirming that we would implement the new treatment in September 2019. We have met the commitment, and student loans are now recorded on the new basis in the public sector finances statistics.

To reflect the new treatment, we have made historical revisions to the PSNB and PSNFL series. PSND is not affected by the student loan treatment.

In June 2019, we provisionally estimated that PSNB would be increased by £10.6 billion and PSNFL would be increased by £59.2 billion in the FYE March 2019 upon implementation. In the finalised impacts presented in this bulletin, PSNB is increased by £12.4 billion and PSNFL is increased by £55.9 billion in the FYE March 2019 as a result of the treatment change. The final revisions differ from our provisional estimates for two reasons. Since June 2019:

• we have extended the individual-level modelling to cover all types of student loan in the UK and performed further quality assurance of the data

• we have analysed the pre-2012 student loan sales conducted by the government in 2017 and 2018 and concluded that under the new treatment, the sales increase PSNB by £1.5 billion in the FYE March 2019

In Section 5.5 of the June 2019 methodological guide, we discussed the reconciliation mechanism that we use under the new methodology when a sale of student loans takes place. It is possible that the sale proceeds can differ from our estimate of the corresponding loan asset’s value; these numbers differ inherently in what they represent. The loan value in the national accounts is the statistical value of future repayments (based on the loan balance, principle and interest expected to be fully repaid before the loans are written off). The government also considers expected future repayments with regards to loan sales. In assessing whether the sale achieves good value for money, it derives a present value of the repayments, accounting for additional factors such as the opportunity cost of holding student loan assets.

Where we identify that the sale price was significantly different from the value recorded in the national accounts balance sheet, we record a capital transfer equal to the difference in value between the realised sale proceeds and our estimate of the corresponding loan asset’s value, which affects PSNB. Our analysis of the pre-2012 loan sales that took place in December 2017 and December 2018 shows that the difference in value on those occasions was £1.2 billion in 2017 and £1.5 billion in 2018; we recorded capital transfers of those amounts for each of the loan sales.

Capital consumption

This month, we have introduced a number of improvements to the estimation of capital stocks and therefore the consumption of fixed capital. These include:

• the life length of fixed assets

• the classification of stocks by asset, industry and the institutional sector

• the modelling of the age-efficiency profile of capital assets

Updates to capital consumption are public sector net borrowing (PSNB) neutral, that is, any increase in capital consumption leads to an equivalent increase in current budget deficit and an equal and offsetting reduction in net investment.

As a result of this work, public sector current budget deficit in financial year ending March 2019 has increased by £8.4 billion, with an equal and offsetting reduction to net investment over the same period.

There are no PSNB, PSND or PSNFL impacts associated with a change to capital consumption.

Impact tables for changes implemented in September 2019

Tables 4, 5 and 6 present our latest estimates of PSNB, net financial liabilities and net debt with the impacts of changes to the accounting for student loans, public sector pensions and capital constumption introduced in September 2019 removed.

The impacts presented in these tables are in-line with but do not match exactly the provisional estimates included in last month’s bulletin because of methodological improvements identified over the last period.

Impact of student loans, public sector-funded pension scheme and capital consumption changes introduced in September 2019: Appendix G expands this presentation to include the impact on current budget deficit and net investment and also provides additional quarterly and monthly time series. We plan to continue publishing updated versions of these tables until the end of the current financial year (April 2020).

Other data and methodology changes introduced in September 2019

Value Added Tax refunds

In October 2018, we announced the completion of a review of our recording of Value Added Tax (VAT) refunds data.

VAT refunds provide an estimate of the amount of VAT claimed back by local authorities and central government departments, with the intention of recording the sales of services consumed by the government on an equivalent basis, whether they are provided by the government or by the private sector.

At the time, we noted that the identified improvements to our recording of the VAT refunds (associated with the NHS, academies, the BBC and police commissioners) would be only introduced for the FYE March 2018 and the FYE March 2019 and that further data improvements would be introduced in line with the national accounts. In September 2019, we will be introducing these improvements back to the FYE March 1998.

Given that this tax is recorded as income and expenditure for both local or central government, any updates to VAT refunds data have no impact on PSNB. Public sector current receipts have increased by £3.7 billion in the FYE March 2017, with an equal and offsetting increase in both current spending and net investment of £3.7 billion and £0.1 billion, respectively, over the same period.

There are no PSNB, PSND or PSNFL impacts associated with a change to VAT refunds.

Winter Fuel Payments

Winter Fuel Payments are universal benefits designed to help cover heating costs and paid to those aged 65 years or over.

Historically, the expenditure for this benefit has been recorded in the public sector finances in November, which is when the cash payments are made. However, the eligibility for each year’s payments is settled in September, as claimants must have lived in the UK during the “qualifying week” of that month.

In line with our standard accruals methodology and following discussions with the Department for Work and Pensions, we have revised the recording of these payments to the point each year when the eligibility is established, rather than when the cash is paid. The change moves the expenditure between these two months (November to September) within the same financial year, increasing PSNB in September and reducing it by an equal and offsetting amount in November.

These changes have been made back to the FYE March 1998, when the benefit was introduced.

This section presents information on aspects of data or methodology that are planned but not yet included in the public sector finances.

Looking ahead – developments in public sector finance statistics

On 31 May 2019, we published the second publication in our series of development articles, Looking ahead – developments in public sector finance statistics: 2019. In this article, we listed a number of short-term areas of work that we aim to implement in public sector finance statistics within 18 months from the date of this publication. These include:

• treatment of student loans (subsequently introduced in September 2019)
• presentation of pension data on a gross basis (subsequently introduced in September 2019)
• International Monetary Fund’s (IMF) Government Finance Statistics Framework (initially introduced in May 2019)
• treatment of capital consumption (or depreciation) (subsequently introduced in September 2019)
• continuous development of public sector net financial liabilities (PSNFL)
• recording of leases

The article also provides some detail on the areas of planned medium- and longer-term development.

Ongoing developments in public sector finance statistics

This section presents information on our current continuous improvement projects and methodological decisions that are planned but not yet included in the public sector finances.

Clinical Negligence Indemnity Cover

On 1 April 2019, the government announced the Clinical Negligence Scheme for General Practice (CNSGP), operated by NHS Resolution on behalf of the Secretary of State for Health and Social Care.

The scheme provides comprehensive cover to all General Practitioners (GPs) and their wider practice team for clinical negligence relating to NHS services occurring from 1 April 2019. In parallel, the government has agreed commercial terms with the Medical Protection Society covering claims for historical NHS clinical negligence incidents concerning their GP members occurring at any time before 1 April 2019.

We are currently assessing the implications of this scheme for the public sector finances and will announce our findings at the earliest opportunity.

EU withdrawal agreement

Although the Office for Budget Responsibility (OBR) discusses the EU settlement in their Economic and fiscal outlook – March 2019 report, the details in the report are still subject to negotiation.

There is insufficient certainty at this stage for us to complete a formal assessment of impact on the UK public sector finances.

On 28 January 2019, former National Statistician John Pullinger released a statement outlining our legislative preparations for a possible no-deal EU exit.

East Coast Mainline

On 16 May 2018, the government announced that from 24 June 2018, London North Eastern Railway (LNER) will take over the running of East Coast Mainline services. On 31 August 2018, we announced that LNER would be classified to the public non-financial corporations sub-sector, effective from 14 February 2018. We are currently investigating the implications of this decision and our conclusions will be announced in due course.

Carillion insolvency

Following Carillion Plc declaring insolvency on 15 January 2018, the UK government announced that it would provide the funding required by the Official Receiver, to ensure continuity of public services through an orderly liquidation. The Official Receiver has been appointed by the court as liquidator, along with partners at PwC that have been appointed as Special Managers. The defined benefit pension schemes of former Carillion employees are currently being assessed by the Pension Protection Fund prior to any transition into the Pension Protection Fund scheme.

We are currently investigating the various impacts of the liquidation of Carillion on the public sector finances, including in relation to the public–private partnership projects in which Carillion was involved and the additional funding that the government has provided to maintain public services. We will announce our findings in due course.

Prior to liquidation, Carillion held approximately 450 contracts with government, representing 38% of Carillion’s 2016 reported revenue.

Sale of railway arches

On 11 September 2018, Network Rail announced they had agreed terms for the sale of their Commercial Estate business in England and Wales. On 4 February 2019, the National Audit Office confirmed that Network Rail had completed a £1.46 billion sale of its commercial property portfolio consisting of approximately 5,200 properties across England and Wales, mainly railway arches.

Public sector net debt (PSND) at the end of February 2019 and the central government net cash requirement in February 2019 were each reduced by an amount equivalent to the cash received by central government from the sale.

We are currently investigating the nature of the transaction to ensure that the impacts will be fully reflected in the public sector finances, so it has yet to be determined whether public sector net borrowing (PSNB) is affected and therefore it remains unchanged.

McCloud pension case

In 2015, the government introduced changes to most public sector pension schemes. As part of the transitional arrangements, older members of the pension schemes had an opportunity to stay in their original pension schemes, which offered better terms than the new schemes introduced at the time. Younger members had to transfer to the new schemes. In December 2018, the Court of Appeal ruled that these arrangements amounted to unlawful age discrimination in a decision that was consequently upheld by the Supreme Court. Although the court ruling was related to judges’ and firefighters’ pension schemes, on 15 July 2019 the Government confirmed that the difference in treatment will need to be remedied across all relevant public sector pension schemes.

The impact of this decision on public sector finances is not yet known, but it has the potential to change the size of the pension liability as well as the net borrowing position of the public sector pension sub-sector. We will provide further information on the impacts of this ruling when it becomes available.

Time series data

All data contained within these publications are available to download via the Public sector finances time series. From April 1997 to date, where available, time series are presented as monthly data, with series extending further back in time, generally presented on a quarterly or financial year basis.

Time series exclusive to the public sector finances borrowing by sub-sector presentation are only available as quarterly time series, though these extend back to 1946.

Supporting documentation

Documentation supporting this publication is available in appendices to the bulletin:

• Public sector finances tables 1 to 10: Appendix A
• Large impacts on public sector fiscal measures excluding banking groups: Appendix B
• Public sector finances revisions analysis on main fiscal aggregates: Appendix C
• Public sector current receipts: Appendix D
• International Monetary Fund’s Government Finance Statistics Framework in the public sector finances: Appendix E
• Revisions to the first reported estimate of public sector net borrowing: Appendix F
• Impact of student loans, public sector-funded pension scheme and capital consumption changes introduced in September 2019: Appendix G

Public sector borrowing by sub-sector

Each month, at 9:30am on the working day following the public sector finances statistical bulletin, we publish Public sector finances borrowing by sub-sector. This release contains an extended breakdown of public sector borrowing in a matrix format and estimates of total managed expenditure (TME).

Country and regional public sector finances

On 28 May 2019, we published the latest release of our regular Country and regional public sector finances articles. This release includes a summary of net fiscal balance, total revenue and total expenditure by country and region within the UK.