Public sector finances, UK: January 2021

Other commentary from the latest public sector finances data can be found on the following pages:

• Recent and upcoming changes to public sector finance statistics: January 2021
• UK government debt and deficit: September 2020

• Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £8.8 billion in January 2021, £18.4 billion more than in January 2020, which is both the highest January borrowing since monthly records began in 1993 and the first January deficit for 10 years.

• Central government tax receipts are estimated to have been £63.2 billion in January 2021 (on a national accounts basis), £0.8 billion lower than in January 2020, with notable falls in taxes on production such as Value Added Tax (VAT) and Business Rates.

• Self-assessed Income Tax receipts were £16.8 billion in January 2021, £1.4 billion more than in January 2020; in the light of the government’s tax deferral policy, it is advisable to look at combined self-assessed Income Tax receipts across the whole financial year when drawing conclusions from year-on-year comparisons.

• Central government bodies are estimated to have spent £81.9 billion on day-to-day activities (current expenditure) in January 2021, £19.7 billion more than in January 2020; this includes £5.1 billion expenditure on coronavirus job support schemes.

• Public sector net borrowing (excluding public sector banks, PSNB ex) in the first 10 months of this financial year (April 2020 to January 2021) is estimated to have been £270.6 billion, £222.0 billion more than in the same period last year and the highest public sector borrowing in any April to January period since records began in 1993.

• Public sector net debt (excluding public sector banks, PSND ex) rose by £316.4 billion over the first 10 months of this financial year to reach £2,114.6 billion at the end of January 2021, or around 97.9% of gross domestic product (GDP); maintaining a level not seen since the early sixties

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was a surplus of £10.8 billion in January 2021, bringing the current financial year-to-January total to £307.4 billion, nearly double the highest cash requirement in any other April to January period since records began in 1984.

• General government net borrowing in the first 10 months of this financial year is estimated to have been around 12.6% of GDP, while general government gross debt stood at around 100.6% of GDP at the end of January 2021; statistics for the general government sector are used for international comparisons and include central and local government only.

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy and subsequently on public sector borrowing and debt.

Central government tax and National Insurance receipts (combined) in the 10 months-to-January 2021 fell by £38.9 billion (or 6.7%) compared with the same period a year earlier, while government support for individuals and businesses during the pandemic contributed to an increase of £182.8 billion (or 29.8%) in central government day-to-day (or current) spending.

The latest official forecasts, published by the Office for Budget Responsibility (OBR) on 25 November 2020, indicate that the £270.6 billion borrowed by the public sector in the financial year-to-January 2021 could reach £393.5 billion by the end of March 2021.

It should be noted that the OBR borrowing forecast for the financial year ending March 2021 (April 2020 to March 2021) includes an estimated £29.5 billion in write-offs of the business loans under the government’s COVID-19 schemes whereas Office for National Statistics (ONS) outturn data does not yet include any estimates for these write-offs.

On 3 March 2021, OBR will publish an updated set of forecasts alongside Budget 2021. We will use these forecasts to inform our data at the earliest opportunity.

The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Public sector net debt (excluding public sector banks) at the end of January 2021 was equivalent to 97.9% of GDP.

Larger coronavirus (COVID-19) support schemes by implementation status

In total, at least 50 schemes have been announced by the UK government and the devolved administrations to support individuals and businesses during the pandemic. In this section we list the largest of the active schemes by implementation status within the public sector finances.

More details on the impact of the pandemic on the public sector finances are provided in Section 12 of this release and the accompanying Recent and upcoming changes to public sector finances, January 2021 article.

Schemes fully recorded in compliance with existing international statistical guidance are:

• COVID-19 Corporate Financing Facility
• Coronavirus Job Retention Scheme (CJRS)
• Self-employment Income Support Scheme (SEISS)
• Eat Out to Help Out
• miscellaneous subsidies paid out to businesses

The following schemes are partially or not yet implemented in the public sector finance statistics:

• Coronavirus Business Interruption Loan Scheme
• Coronavirus Large Business Interruption Loan Scheme
• Bounce Back Loan Scheme
• Future Fund
• Emergency Measures Agreements for train operating companies
• Trade Credit Reinsurance Scheme
• Local Restrictions Support Grant

Finally, some schemes have been announced but relate to future periods. This category includes cases where the scheme may be open for applications, but no payments have yet been made. Schemes that have been postponed and remain inactive are also included in this category:

• Job Support Scheme (JSS)
• Closed Businesses Lockdown Payment

In January 2021, the public sector spent more money than it received in taxes and other income, requiring it to borrow £8.8 billion, £18.4 billion more than it borrowed in January 2020.

Each January, accrued receipts tend to be higher than in other months owing to receipts from self-assessed taxes, often leading to a public sector net surplus.

Though self-assessed Income Tax receipts this month were £16.8 billion, £1.4 billion higher than in January last year, the substantial increase in government spending during the current pandemic combined with an overall reduction in revenue has meant that this month was the first January deficit since 2011.

Table 1 summarises the components of public sector net borrowing (excluding public sector banks) in January 2021 and compares them with the equivalent measures in the same month a year earlier. Additionally, the table presents estimates of the borrowing of public sector banks and the full public sector net borrowing measure.

Central government

Central government is the largest sub-sector of the public sector. Of the £8.8 billion borrowed by the public sector in January 2021, £11.4 billion was borrowed by central government, with local government showing a surplus of £2.1 billion.

Central government receipts

In January 2021, central government receipts were estimated to have fallen by £0.8 billion compared with January 2020 to £80.3 billion, including £63.2 billion in tax receipts.

Table 2 summarises the components of central government receipts in January 2021 and compares them with the equivalent measures in the same month a year earlier.

In the most recent months, tax receipts recorded on an accrued (or national accounts) basis are always subject to some uncertainty, as many taxes such as Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax contain some forecast cash receipts data and are liable to revision when actual cash receipts data are received.

Currently these forecasts incorporate estimates published in the Office for Budget Responsibility (OBR) Economic and fiscal outlook – November 2020 (EFO – November 2020).

Customs duties

From January 2021, customs duties are recorded as UK tax receipts, where previously they were recorded as EU tax receipts (not in the UK public sector).

Recorded as a tax on production, January’s accrued receipt of £0.3 billion is an initial HM Revenue and Customs (HMRC) estimate based on their expectations of receipts. Customs duty receipts accrued from the six months January to June 2021 should be considered provisional and may be revised when more data become available. See Section 11 for further information.

Self-assessed Income Tax receipts

Each January (and July), accrued receipts tend to be higher than in other months owing to receipts from self-assessed taxes.

This month self-assessed Income Tax receipts were £16.8 billion, £1.4 billion more than in January 2020. Some of this growth was likely because of the government’s deferral policy, giving an option for individuals to defer their July self-assessment payment to January 2021 because of the coronavirus pandemic, without incurring late payment charges.

Given that late payments of self-assessed Income Tax due in January will be recorded in February, it is usually better to look at receipts in January and February combined when making annual comparisons. However, in light of the government’s deferral policy and the government’s payment plan facility to help those who expect to have difficulty in meeting their January 2021 obligations, this year it is advisable to look at the combined self-assessed Income Tax receipts across the whole financial year when drawing conclusions from year-on-year comparisons.

Currently, in the financial year-to-January 2021, self-assessed Income Tax receipts were £26.3 billion, £2.0 billion less than in the same period a year earlier.

Capital Gains Tax

Self-assessed Capital Gains Tax obligations are due to be paid each January. This month Capital Gains Tax receipts were £7.1 billion, £0.1 billion more than in January 2020.

Like self-assessed Income Tax, as some late payments due in January will be recorded in February (and to a much lesser extent March), it is usually better to look at receipts in these months combined when making annual comparisons.

Bank of England Asset Purchase Facility Fund

In January 2021, there was a £3.0 billion dividend transfer from the Bank of England Asset Purchase Facility Fund (BEAPFF) to HM Treasury. This brings the total transfer in the current financial year-to-January 2021 to £13.7 billion.

The Bank of England entrepreneurial income for the financial year ending March 2020 was estimated at £11.4 billion. In line with statistical guidance, this is the total amount of dividend transfers that can impact central government net borrowing in the financial year ending March 2021. As such, of the £3.0 billion dividend transfer in January, only £0.7 billion was treated as a central government receipt.

As with other such transfers, central government net borrowing is reduced by the value of transfer receipt, while the net borrowing of the Bank of England is increased by an equal and offsetting amount. There is no impact at the public sector level.

The remaining £2.3 billion is considered an equity withdrawal, a financial transaction with no resulting borrowing impact.

All cash transferred from the Asset Purchase Facility to HM Treasury is fully reflected in central government net cash requirement and net debt.

Central government expenditure

Central government bodies spent £89.1 billion in January 2021, £21.5 billion more than in January 2020. Of this, £81.9 billion was spent on day-to-day activities (often referred to as current expenditure), such as:

• providing services and grants (for example, related to education, defence, and health and social care) – including the current job furlough schemes
• payment of social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay)
• payment of the interest on the government’s outstanding debt

The remaining £7.2 billion was spent on capital investment such as infrastructure.

Table 3 summarises the components of central government expenditure in January 2021 and compares them with the equivalent measures in the same month a year earlier.

Interest payments on debt by central government

Interest payments on central government debt were £1.8 billion in January 2021, £2.1 billion less than in January 2020. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged.

Central government expenditure on goods and services

Central government departments spent £9.7 billion more on goods and services in January 2021 than in January 2020, including £8.2 billion more on procurement and £1.3 billion more on pay. These increases partially reflect the expenditure by the Department of Health and Social Care (DHSC), devolved administrations and other departments in response to the coronavirus pandemic.

Contributions to the EU

Many of the UK’s regular monthly payments to the EU stopped with effect from January 2021, while others are ending. This month the UK did not record any of its regular VAT and gross national income-based contributions to the EU budget. Decisions on the recording of any future payments such as those outlined in the Withdrawal Agreement will be made in due course.

Business rates relief repayment

In response to the coronavirus pandemic, qualifying businesses in retail, leisure and hospitality were eligible for a business rates relief (alternatively described as a business rates holiday or discount) for the financial year ending (FYE) March 2021.

At the end of 2020, some businesses announced their intention to make payments in lieu of the relief.

Considering the voluntary nature of this decision, we treat the associated payments by these businesses in respect of the FYE March 2021 not as business rates (taxes), but instead as capital transfers to central government from the private non-financial corporations sub-sector, recorded at the point of payment.

Subsidies paid by central government

In January 2021, central government paid £6.9 billion more in subsidies to businesses and households than in January 2020. These additional payments included the cost of the job furlough schemes; £4.3 billion as a part of the Coronavirus Job Retention Scheme (CJRS) and £0.8 billion Self-Employment Income Support Scheme (SEISS).

Local government and public corporations

Both local government and public corporations’ data for January 2021 are initial estimates, largely based on the Office for Budget Responsibility’s (OBR’s) Economic and fiscal outlook (November 2020), which will be revised when further information is available.

Subsidies paid out to businesses as part of the Coronavirus Small Business Grant Fund, the Coronavirus Retail, Hospitality and Leisure Grant Fund, the Coronavirus Local Authority Discretionary Grants, and similar schemes in devolved administrations, are included based on administrative data published by the Ministry of Housing, Communities and Local Government (MHCLG) and by the Scottish and Welsh Governments.

In January 2021, central government current transfers to local government were £14.8 billion, £6.0 billion higher than January 2020. This increase is largely to enable local government to fund its coronavirus policies. Some coronavirus-related current grants that have been paid by central to local government have either not yet been spent, or have not yet been fully reflected in our estimates of local government spending.

Current and capital transfers between these sub-sectors and central government are based on administrative data supplied by HM Treasury and have no impact at the public sector level.

Borrowing in the current financial year-to-date

In the current financial year-to-January 2021, the public sector borrowed £270.6 billion, £222.0 billion more than in the same period last year.

This substantial increase largely reflects the impact of the coronavirus pandemic on the public finances, with the furlough schemes alone adding £70.7 billion to borrowing in the financial year-to-January 2021.

Table 4 summarises the components of public sector net borrowing (excluding public sector banks) in the financial year-to-January 2021 and compares them with the equivalent measures in the same period a year earlier. Additionally, the table presents estimates of the borrowing of public sector banks and the full public sector net borrowing measure.

Borrowing had generally been falling since its peak in financial year ending (FYE) 2010. However, the £57.1 billion borrowed in the latest full financial year (April 2019 to March 2020) was £18.5 billion more than in the previous financial year, largely because of the impact of the coronavirus pandemic being evident from March 2020.

Table 5 summarises the components of central government receipts in the financial year-to-January 2021 and compares them with the equivalent measures in the same period a year earlier.

On 20 March 2020, the government introduced a Value Added Tax (VAT) payment deferral policy to support UK business during the coronavirus pandemic by enabling them to pay Value Added Tax (VAT) due between 20 March and 30 June 2020 at a later date (though before 31 March 2022).

VAT receipts recorded in the financial year-to-January 2021 are provisional because the impact of this deferrals scheme has been estimated.

See Section 12 for more information on the challenges of measuring the effects of the coronavirus pandemic on VAT and other tax receipts.

Table 6 summarises the components of central government expenditure in the financial year-to-January 2021 and compares them with the equivalent measures in the same period a year earlier.

Central government bodies are estimated to have spent £795.6 billion on day-to-day activities (current expenditure) in the financial year-to-January 2021, £182.8 billion more than in the same period in the previous year. Of this additional expenditure, £70.7 billion was paid as a part of the job furlough schemes, with £51.1 billion on the Coronavirus Job Retention Scheme (CJRS) and £19.6 billion on the Self-Employment Income Support Scheme (SEISS).

CJRS payments on an accrued (or national accounts) basis for the period March to December 2020 are based on HM Revenue and Customs (HMRC) estimates, while the January amount reflects the latest OBR official forecast. SEISS payments are currently recorded on a cash basis, reflecting HMRC coronavirus statistics.

Local government borrowing

In the financial year-to-January 2021, local government borrowing was in surplus although the pattern of local government expenditure in this period is subject to greater than usual uncertainty. Some coronavirus-related current grants that have been paid by central to local government have not yet been spent by local government, with the possibility of any unspent grants being returned to central government.
 

The central government net cash requirement (CGNCR), excluding UK Asset Resolution Ltd and Network Rail, is the amount of cash needed immediately for the UK government to meet its obligations. To obtain cash, the UK government sells financial instruments, gilts or Treasury Bills.

The amount of cash required will be affected by changes in the timing of tax payments by individuals and businesses but does not depend on forecast tax receipts in the same way as our accrued (or national accounts)-based measures.

The CGNCR consequently contains the most timely information and is less susceptible to revision. However, as for any cash measure, the CGNCR does not reflect the overall amount for which the government is liable or the point at which any liability is incurred – it only reflects when cash is received and spent.

On 20 March 2020, the government introduced a Value Added Tax (VAT) payment deferral policy to support UK businesses during the coronavirus (COVID-19) pandemic by enabling them to pay Value Added Tax (VAT) due between 20 March and 30 June 2020 at a later date (though before 31 March 2022). This policy has substantially lowered VAT cash receipts over this four-month period.

Tables 7 and 8 demonstrate how CGNCR is calculated from cash receipts and cash outlays. This presentation focuses on the central government’s own account and excludes cash payments to both local government and public non-financial corporations.

On the same day that we release the public sector finances, HM Revenue and Customs (HMRC) publishes a Summary of HMRC tax receipts, National Insurance contributions (NICs), tax credit expenditure and Child Benefit for the UK containing a detailed list of cash receipts.

Public sector net debt (excluding public sector banks) rose by £316.4 billion in the first 10 months of the financial year ending 2021 to reach £2,114.6 billion at the end of January 2021, £328.6 billion more than in January 2020.

The extra funding required to support government coronavirus (COVID-19) support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Public sector net debt (excluding public sector banks) at the end of January 2021 was equivalent to 97.9% of GDP.

Debt represents the amount of money owed by the public sector to the private sector and is largely made up of gilts (or bonds) issued to investors by central government.

At the end of January 2021, there was £1,815.8 billion of central government gilts in circulation (including those held by the Bank of England (BoE) Asset Purchase Facility Fund). These gilts are auctioned by the Debt Management Office (DMO), on behalf of central government in accordance with its financing remit.

There has been a substantial increase in gilts issuance at face (or redemption) value in the current financial year, partially reflecting the need for extra funding to support government coronavirus support schemes and to compensate for the fall in tax revenue.

However, between December 2020 and January 2021, public sector net debt reduced by £17.0 billion mainly as a result of the cash receipts, including self-assessed Income Tax, being higher than cash spending resulting in a negative central government net cash requirement.

Over this period the gilts in circulation reduced by £9.2 billion because of a redemption, the size of which exceeded the gilts issued in January, but this had no impact on public sector net debt as it was offset by the cash paid out to the holders of the gilts that were redeemed.

The Bank of England’s contribution to debt

The Bank of England’s (BoE) contribution to debt is largely a result of its quantitative easing activities through the BoE Asset Purchase Facility Fund (APF) and Term Funding Schemes (TFS).

If we were to remove the temporary debt impact of these schemes along with the other transactions relating to the normal operations of the BoE, public sector net debt excluding public sector banks (PSND ex) at the end of January 2021 would reduce by £229.7 billion (or 10.6 percentage points of GDP) to £1,884.8 billion (or 87.3% of GDP).

Bank of England Asset Purchase Facility Fund

Gilts are the primary financial instrument purchased under the Asset Purchase Facility Fund (APF). At the end of January 2021, the gilt holdings of the APF were £622.3 billion at face (or redemption) value, an increase of £9.5 billion compared with a month earlier. Following a government announcement on 5 November 2020, the gilt holdings of the APF are currently capped at £875 billion.

The estimated impact of the APF’s gilt holdings on debt currently stands at £111.9 billion, representing the difference between the value of the reserves created to purchase gilts (or market value of the gilts) and the face (or redemption) value of the gilts purchased.

In this case, it is not the gilt holdings themselves that contribute to debt but the difference in the valuations for these assets. The final debt impact of the APF depends on the disposal of these financial instruments at the end of the scheme (more specifically, the price received at their re-sale compared with their purchase price).

Corporate bond purchases under the APF umbrella have been on a smaller scale than gilt purchases. The total corporate bond holdings at the end of January 2021 stood at £19.9 billion, adding an equivalent amount to the level of debt.

Term Funding Scheme (TFS) and Term Funding Scheme with additional incentives for small and medium-sized enterprises (TFSME)

The Term Funding Schemes aim to reinforce the transmission of Bank Rate cuts to those interest rates faced by households and businesses.

The public sector balance sheet contains a liability as a result of the creation of the central bank reserves and an asset as a result of the loans to TFS (and TFSME) participants.

At the end of January 2021, the TFS loan liability stood at £46.8 billion and the TFSME loan liability stood at £66.6 billion, making a combined liability of £113.4 billion, adding an equivalent amount to the level of debt.

Assets purchased under the TFS and TFSME fall outside the boundary of PSND ex. Those users who are interested in wider measures of the public sector balance sheet may find estimates of public sector net financial liabilities (PSNFL) of interest.

The data for the latest months of every release contain a degree of forecasts; subsequently, these are replaced by improved forecasts as further data are made available and finally by outturn data.

The coronavirus (COVID-19) pandemic has had a substantial impact on both tax receipts and expenditure. These impacts are likely to be revised further as the full effects of the coronavirus pandemic on the public finances continue to become clearer.

The revisions presented in this section are largely the result of new tax and expenditure data received from our data suppliers.

Revisions to net borrowing in the financial year-to-December 2020

This month we have reduced our previous estimate of borrowing in the financial year-to-December 2020 by £9.0 billion. This was largely because of a reduction in previous estimates of central government procurement, coupled with an overall increase in our previous estimate of combined tax receipts and National Insurance contributions.

Table 9 summarises the revisions to the components of public sector net borrowing (excluding public sector banks) by comparing them with the equivalent measures published in the previous bulletin (published on 22 January 2021).

Revisions to central government current receipts in the financial year-to-December 2020

Table 10 summarises the revisions to central government receipts by comparing them with the equivalent measures published in the previous bulletin (published on 22 January 2021).

Tax receipts and National Insurance contributions

Estimates of central government tax receipts and National Insurance contributions presented in this bulletin are partially based on official projections published by the Office for Budget Responsiblity (OBR). Currently these forecasts incorporate estimates published in their Economic and fiscal outlook – November 2020 (EFO – November 2020).

Section 12 explains the challenges of measuring the effects of the coronavirus pandemic on tax receipts and discusses the recording of tax receipts in some detail.

Revisions to central government current expenditure in the financial year-to-December 2020

Table 11 summarises the revisions to central government expenditure by comparing them with the equivalent measures published in the previous bulletin (published on 22 January 2021).

Revisions to subsidies

This month we reduced our previous estimates of job furlough payments under the Coronavirus Job Retention Scheme (CJRS) by £2.0 billion in the financial year-to-December 2020.

While smaller downward revisions were made across the financial year-to-November as a result of updated HM Revenue and Customs (HMRC) estimates, December 2020 was reduced by £1.9 billion as a result of replacing an OBR forecast by an initial outturn estimate supplied by HMRC.

The downward revision to CJRS was offset over the financial year-to-December by new agricultural subsidies replacing some former EU payments to UK farmers. We have included these new central government agricultural subsidies for the first time this month.

These data are recorded within subsidies paid by central government in Table 11.

Revisions to procurement

This month we have reduced our estimates of central government procurement of goods and services by £7.1 billion in the financial year-to-December 2020. This change is partly as a result of new data and partly because of the reallocation of some central government spending between the procurement category and the transfers to local government category.

As a result, we have increased our estimates of current transfers paid by central to local government by £1.3 billion in the financial year-to-December 2020. Local government borrowing was reduced by an equal and offsetting amount over the same period.

Revisions to public sector net debt and net cash requirement

Table 12 shows the revisions to public sector net debt and net cash requirement presented in this bulletin compared with those presented in the previous bulletin (published on 22 January 2021).

Revisions to public sector net debt as a ratio of GDP

This month we have updated our gross domestic product (GDP) estimates to reflect the latest published data – GDP first quarterly estimate, UK: October to December 2020. As a result, we have reduced our previously published estimate of public sector net debt (excluding public sector banks) expressed as a ratio of GDP at the end of December 2020 by 0.2 percentage points to 99.2%. These revisions to the debt ratio extend back to July 2019.

We have published an article that explains how estimates of GDP are used to present debt and other headline measures.

Public sector

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 (BoE) and public financial corporations (or public sector banks).

Public sector current budget deficit

Public sector current budget is the difference between revenue (mainly from taxes) and current expenditure, on an accrued (or national accounts) basis; it is the gap between current expenditure and current receipts (having taken account of depreciation). The current budget is in surplus when receipts are greater than expenditure.

Public sector net investment

Public sector net investment is the sum of all capital spending, mainly net acquisitions of capital assets and capital grants, less the depreciation of the stock of capital assets.

Public sector net borrowing

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)). PSNB is often referred to by commentators as “the deficit”.

Public sector net cash requirement

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

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, minus the amount of cash and other short-term assets it holds. PSND is often referred to by commentators as “the national debt”.

Debt interest to revenue ratio

The debt interest to revenue ratio (DIR) represents the proportion of net interest paid (gross interest paid less interest received) by the public sector (excluding public sector banks), compared with the non-interest receipts it receives in a given period.

Other important terms commonly used to describe public sector finances are listed in the Public sector finances glossary.

The Monthly statistics on the public sector finances: a 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. The borrowing estimates presented in this bulletin are not adjusted for inflation.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Public sector finances QMI.

Comparisons with official forecasts

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.

The official OBR expectations for the financial year ending March 2021 presented in Table 13 reflect those published in the OBR’s Economic and fiscal outlook – November 2020, published on 25 November 2020.

It should be noted that the OBR borrowing forecast for the financial year ending March 2021 includes an estimated £29.5 billion in write-offs of the business loans under the government’s coronavirus (COVID-19) schemes and outturn data does not yet include any estimates for these write-offs.

On 3 March 2021, OBR will publish an updated set of forecasts alongside Budget 2021. We will use these forecasts to inform our data at the earliest opportunity.

International comparisons

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

On 21 January 2021, we published UK government debt and deficit: September 2020, consistent with Public sector finances, UK: November 2020 (published on 22 December 2020).

These statistics were published by Eurostat on 21 January 2021 alongside comparable data for each of the 27 EU member states for general government gross debt and borrowing.

Figure 9 illustrates how the recent change in UK general government consolidated gross debt (or Maastricht debt) compares with selected EU member states.

Measured according to the Maastricht definition, UK government debt increased by 16.9 percentage points of GDP between the end of September 2019 and the end of September 2020. This increase was 4.7 percentage points higher than the average of the 27 EU member states.

End of EU exit transition period

As the UK enters into a new Trade and Cooperation Agreement with the EU, the UK statistical system will continue to produce and publish our wide range of economic and social statistics and analysis.

We are committed to continued alignment with the highest international statistical standards, enabling comparability both over time and internationally, and ensuring the general public, statistical users and decision makers have the data they need to be informed.

This means that the statistics included in this release, and our sector classifications process, will continue to draw on the European System of Accounts (ESA) 2010 and the Manual on Government Deficit and Debt, and associated guides following the end of the Transition period. We also intend to continue to produce the main fiscal aggregates that we have previously provided to Eurostat as part of the Excessive Deficit Procedure (EDP) process.

As the shape of the UK’s future statistical relationship with the EU becomes clearer over the coming period, the Office for National Statistics (ONS) is making preparations to assume responsibilities that as part of our membership of the EU, and during the transition period, were delegated to the statistical office of the EU, Eurostat. This includes responsibilities relating to international comparability of economic statistics, deciding what international statistical guidance to apply in the UK context and to provide further scrutiny of our statistics and sector classification decisions.

In applying international statistical standards and best practice to UK economic statistics, we will draw on the technical advice of experts in the UK and internationally, and our work will be underpinned by the UK’s well-established and robust framework for independent official statistics, set out in the Statistics and Registration Service Act 2007. Further information on our proposals will be made available early this year.

National Statistics status for public sector finances

On 20 June 2017, the UK Statistics Authority published a letter confirming the designation of the monthly public sector finances bulletin as a National Statistic. This letter completes the 2015 assessment of public sector finances.

Gross domestic product (GDP)

Estimates of GDP used to present debt and other headline measures are partly based on provisional and official forecast data.

Our January 2021 estimate of GDP requires data across five quarters of GDP. Of these, two are based on the latest Office for National Statistics (ONS) published data and three are based on official Office for Budget Responsibility (OBR) projections:

• data up to and including Quarter 4 (October to December) 2020 are based on the published GDP first quarterly estimate, UK: October to December 2020

• estimates of GDP for the subsequent three calendar quarters (January to September 2021) are based on expectations published in the OBR’s Economic and fiscal outlook – November 2020, the first official forecast to consider the impact of the coronavirus (COVID-19) on the public sector finances

Local government

Local government data for the financial year ending March (FYE) 2020 are based on a mixture of provisional outturn data (current and capital expenditure for England and Scotland) and budget data. Both provisional outturn and budget data are subject to further revisions.

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

For FYE 2020, we include a £0.2 billion downward adjustment to Wales’ capital expenditure.

Local government data for FYE 2021 are initial estimates, based on the OBR forecasts. These figures reflect our initial estimates of the impact of the coronavirus pandemic.

For FYE 2021, these estimates include a £7.0 billion upward adjustment to budget forecast data (which predates the coronavirus pandemic) for England’s current expenditure on goods and services, and a £2.5 billion downward adjustment to England’s capital expenditure. We have included £0.7 billion and £0.2 billion downward adjustments to Scotland’s and Wales’ capital expenditure respectively. We apply a further £1.0 billion downward adjustment to budget forecast current expenditure on benefits in FYE 2021, to reflect the most recently available data for housing benefits.

Further information on these and additional adjustments can be found in the Public sector finances QMI.

Current and capital transfers between local and central government are based on administrative data supplied by HM Treasury.

Non-financial public corporations

Public corporations data for FYE 2021 are initial estimates, based on OBR forecasts. Current and capital transfers between public corporations and central government are based on administrative data supplied by HM Treasury.

Public sector funded pensions

Pensions data for FYE 2020 and 2021 are our estimates based on the latest available data. Some of these estimates rely on actuarial modelling; this is 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.

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). The reported position of debt, and to a lesser extent borrowing, would be distorted by the inclusion of RBS’ 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.

Customs duties

From January 2021, customs duties are recorded as UK tax receipts; previously they were recorded as EU tax receipts (not in the UK public sector).

To ease business’ transition, the government has decided to introduce customs controls in stages for non-controlled goods imported from the EU. From 1 January to 30 June 2021, a customs declaration can be submitted up to 175 days after the day of import.

For controlled goods customs declarations are required and must be pre-lodged onto HM Revenue and Customs (HMRC) systems.

As the UK has signed a Trade and Cooperation Agreement with the EU, the amount of customs duties expected on imports from the EU is low. Where duties are due, they are payable when a declaration is submitted, so the introduction of customs controls in stages will mean some accrued receipts from imports up to 30 June 2021 are not received until the second half of 2021.
 

To estimate borrowing, most tax receipts are recorded on an accrued (or national accounts) basis rather than as cash receipts. That is, we attempt to record receipts at the point where the liability arose, rather than when the tax is actually paid.

This means that accruals-based tax receipts for the current period depend on information from both current cash payments and on projections of future tax receipts, which are “accrued” (or time-adjusted) back to the current month. For this purpose, we use official projections of future cash receipts, produced by the Office for Budget Responsibility (OBR).

Estimating future tax receipts

Estimates of tax receipts presented in this bulletin are partially based on official projections published by the OBR in their Economic and fiscal outlook – November 2020 (EFO – November 2020). These are the first official forecasts to consider the impact of the coronavirus (COVID-19) on the public sector finances.

Exceptional adjustments

The Office for National Statistics (ONS) and HM Treasury have been working with both HM Revenue and Customs (HMRC) and the OBR to determine whether there is enough information to make exceptional adjustments that estimate the effects of the coronavirus pandemic.

Where data are available, we have adjusted the recording of accrued tax receipts (on a national accounts basis) for December and earlier periods. These exceptional adjustments, and their underlying assumptions, will be revisited as more information becomes available.

Pay As You Earn Income Tax

Pay As You Earn (PAYE) Income Tax is normally recorded on an accrued (or national accounts) basis by time-adjusting cash receipts using a one-month lag, which means that, for example, accrued PAYE receipts for January are based on forecast February cash receipts.

January 2021 receipts recorded on an accrued basis are estimated based on the OBR’s EFO – November 2020, but with some additional adjustments as described in this section.

The amount of accrued receipts for PAYE Income Tax in December 2020 was stronger than expected in the EFO and continues to suggest that the loss of jobs (or lack of jobs growth) is at the lower end of the income distribution where average PAYE rates are lower. This month we have compared the receipts accrued in both October, November and December against those published in the EFO to make an upward adjustment to January’s accrued PAYE receipts.

We currently assume that most non-paid tax due between April 2020 and January 2021 will still be paid but in a later period than originally expected. We have included a 7% adjustment to reduce expected PAYE receipts on a national accounts basis to account for possible non-payment of PAYE. This assumption is based on the information set out on tax debts and losses in HMRC’s annual report and accounts, and it is based on average losses for the most recent three years of data.

Value Added Tax

Value Added Tax (VAT) data for any month are normally recorded on an accrued (or national accounts) basis by time-adjusting the average cash receipts expected in the following three months. This means that, for example, VAT receipts on an accrued basis in January depend on forecast cash receipts for February, March and April. These are updated as actual receipts become known.

The government announced a deferral scheme for VAT payments, enabling UK businesses to pay VAT due between 20 March and 30 June 2020 at a later date. As a result, cash VAT receipts are lower than usual in this period.

The initial assumption is that the deferred tax owed will still be paid, but in a later period than originally expected, as is permitted under the deferral scheme. We have therefore made an exceptional adjustment to prevent the effects of the deferral scheme on VAT receipts from affecting accrued receipts.

Receipts forecasts are based on the OBR’s EFO – November 2020, adjusted to account for the impacts of the deferral scheme. The existence of this deferral assumption within accrued VAT means that they are subject to revision once further information is gathered on deferred VAT. This month HMRC have improved their estimates for VAT following the incorporation of additional data on recent payments of deferred VAT.

VAT on an accrued basis should be considered as provisional from December 2019 onwards until a final determination has been made on deferrals and the sudden change in economic output observed in March 2020.

Corporation Tax

Corporation Tax data for any month are normally recorded on an accrued (or national accounts) basis by time-adjusting cash receipts for the subsequent 2 to 21 months, depending on the profits of the company.

As with PAYE and VAT, estimates of future months’ cash receipts are currently based on the OBR’s EFO – November 2020. We are not yet able to estimate the amount of Corporation Tax that will not be paid, for example, because of reduced trading activity leading to lower profits, firms deferring tax payments to a future date or firms going out of business.

The national accounts estimate of accrued Corporation Tax relies heavily on forecast cash receipts. However, in making these forecasts, there remains uncertainty regarding the amount of Corporation Tax revenue that may never be received. Both cash receipts and accrued receipts should be viewed together for additional context.

Air Passenger Duty

As with the taxes outlined earlier, estimates of future months’ Air Passenger Duty (APD) cash receipts are currently based on the OBR’s EFO – November 2020.

In estimating APD receipts on an accrued (or national accounts) basis for February to December 2020, we have used additional cash receipts information up to and including January 2021 to inform a judgement on the repayment of arrears.

Alcohol

As with the taxes outlined earlier, estimates of future months’ alcohol cash receipts are currently based on the OBR’s EFO – November 2020.

In estimating alcohol receipts on an accrued (or national accounts) basis for February to December 2020, we have used additional cash receipts information up to and including January 2021 to inform a judgement on the repayment of arrears.

This month HMRC have improved estimates of the allocation of arrears between individual alcohol duties. These improvements do not impact on total accrued alcohol duty.

National Non-domestic Rates

Our estimates of National Non-domestic Rates (or business rates) in the current financial year reflect the Ministry of Housing, Communities and Local Government’s (MHCLG) initial estimate of impact of the coronavirus pandemic and extended reliefs.

In response to the coronavirus pandemic, qualifying businesses in retail, leisure and hospitality were eligible for a business rates relief (alternatively described as a business rates holiday or discount) for the financial year ending (FYE) March 2021.

At the end of 2020, some businesses announced their intention to make payments in lieu of the relief.

Considering the voluntary nature of this decision, we treat the associated payments by these businesses in respect of the FYE March 2021 not as business rates (taxes), but instead as capital transfers to central government from the private non-financial corporations sub-sector, recorded at the point of payment.

These numbers are provisional and may be revised when further information becomes available.