Public sector finances, UK: June 2020

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

• Challenges of measuring the effects of the coronavirus pandemic on tax receipts

• Recent and upcoming changes to public sector finance statistics

• Borrowing (public sector net borrowing excluding public sector banks, PSNB ex) in June 2020 is estimated to have been £35.5 billion, roughly five times (or £28.3 billion more) that in June 2019 and the third highest borrowing in any month on record (records began in 1993).

• Provisional estimates indicate that borrowing in the first quarter of the current financial year (April to June 2020) was more than double that borrowed in the whole of the last financial year (April 2019 to March 2020).

• Borrowing in the first quarter of this financial year is estimated to have been £127.9 billion, £103.9 billion more than in the same period last year and the highest borrowing in any April to June period on record (records began in 1993), with each of the months from April to June being records.

• Borrowing estimates are subject to greater than usual uncertainty; borrowing in May 2020 was revised down by £9.8 billion to £45.5 billion, largely because of stronger than previously estimated tax receipts and National Insurance contributions.

• Central government net cash requirement (excluding UK Asset Resolution Ltd, Network Rail and the Covid Corporate Financing Facility) in June 2020 was £47.1 billion, £33.6 billion more than in June 2019 and the highest cash requirement in any June on record (records began in 1984).

• Central government net cash requirement in the current financial year-to-date (April to June 2020) was £174.0 billion, £153.7 billion more than in the same period last year and the highest cash requirement in any April to June period on record (records began in 1984).

• Debt (public sector net debt excluding public sector banks, PSND ex) at the end of June 2020 was £1,983.8 billion, £195.5 billion more than at the same point last year.

• Debt at the end of June 2020 as a percentage of gross domestic product (GDP) was 99.6%, an increase of 18.9 percentage points compared with the same point last year and the highest debt to GDP ratio since the financial year ending March 1961.

• Estimates of GDP used to present debt and other headline measures are partly based on provisional data and official estimates. Both have been updated since our previous publication (19 June 2020); see Section 9 for further information.

Each September, we take the opportunity to introduce methodology and data changes to public sector finance statistics. These changes can affect estimates of our headline measures of public sector net borrowing excluding public sector banks (PSNB ex), public sector net debt excluding public sector banks (PSND ex) and public sector net financial liabilities excluding public sector banks (PSNFL ex).

Because of the additional quality assurance required in publishing these changes and reflecting the additional pressures faced in compiling the monthly dataset during these unprecedented times, Public sector finances, UK: August 2020, will be released on Friday 25 September 2020, rather than on the Tuesday 22 September 2020 as previously announced.

Our release calendar will be updated to reflect this announcement. Our regular article Recent and upcoming changes to public sector finance statistics has been updated to include details of these proposed methodology and data changes.

The coronavirus (COVID-19) pandemic continues to have a significant impact on the UK public sector finances. These effects arise from both the introduction of public health measures and from new government policies to support businesses and individuals. This section outlines the policies currently reflected in the public sector finance statistics and those that we are currently considering. It is not an exhaustive list and does not cover the many other initiatives the government is currently undertaking to combat the coronavirus pandemic. Many of these schemes, including the Plan for Jobs recently announced by the Chancellor, are reflected within normal government expenditure categories.

Our article Challenges of measuring the effects of the coronavirus pandemic on tax receipts explains how we are currently working with HM Treasury and HM Revenue and Customs (HMRC) to address the challenges of measuring the effects of the coronavirus pandemic on tax receipts. The assumptions and exceptional adjustments we have made in recording taxes on a national accounts basis, explained in the article, are largely the same as those reported last month. However, we have applied an additional adjustment to Pay As You Earn (PAYE) Income Tax and Air Passenger Duty (APD).

These adjustments to both PAYE and to APD receipts on an accrued (or national accounts) basis for June 2020 are informed by additional cash receipts information for May and June 2020. We have used these data to inform a judgement about the repayment of arrears.

Effects of the COVID-19 pandemic currently recorded in the public finances

• Self-Employment Income Support Scheme (SEISS) – in May 2020, we recorded SEISS for the first time. As a subsidy paid by central government, these provisional estimates of SEISS have substantially increased central government expenditure between May and June 2020 and so increased our headline public sector net borrowing (PSNB) measures.

• Transport for London (TfL) extraordinary funding and financing – in May 2020, we recorded the package of grants and loans made by central government to TfL for the first time; these payments are recorded as subsidies from central government to the public corporations sector and have no impact at the public sector level on net borrowing.

• Coronavirus Job Retention Scheme (CJRS) – in April 2020, we recorded the CJRS for the first time. As a subsidy paid by central government, these provisional estimates of CJRS have substantially increased central government expenditure between March and June 2020 and so increased our headline PSNB measures. The CJRS on an accrued (or national accounts) basis remains provisional and may be revised over time. In July 2020, we updated our accrued estimates of CJRS to reflect the latest Office for Budget Responsibility (OBR) estimates.

• Reflecting the impact of the coronavirus in gross domestic product (GDP) estimates – estimates of GDP used to present debt and other headline measures are partly based on provisional and official forecast data. Currently, data up to and including Quarter 1 (Jan to Mar) 2020 are based on the published GDP quarterly national accounts, UK: January to March 2020. Estimates of GDP for the subsequent three calendar quarters are based on expectations published in the OBR's Coronavirus Reference Scenario (14 July 2020). These data do not represent official forecasts but are the latest published official estimates of the impact of COVID-19 on future GDP.

• Reflecting the impact of the coronavirus in tax data – this month, our tax estimates remain partially based on the OBR's Coronavirus Reference Scenario (14 May 2020). On 14 July 2020, the OBR published their Fiscal sustainability report – July 2020 and an update to their Coronavirus Reference Scenario (14 May 2020). Due to the time constraints, the Coronavirus Reference Scenario (14 July 2020) is not yet reflected in the accrued (or national accounts) based estimates of tax receipts included in this bulletin. We plan to incorporate these new data in our 21 August 2020 publication.

• Covid Corporate Financing Facility (CCFF) – in April 2020, we updated our presentation of debt to reflect the treatment of the CCFF for the first time. The CCFF has no impact on the headline public sector net debt (PSND) measures; this provisional treatment of the CCFF may be revised once official statistical guidance has been published. In June 2020, we extended our presentation of CCFF to include the flows of interest receipts and payments.

• Term Funding Scheme additional incentives for Small and Medium-sized Enterprises (TFSME) – in April 2020, we recorded the Bank of England's (BoE) TFSME for the first time. These loans increase the BoE's contribution to PSND, since the assets on which they are secured are not liquid.

• Train Operating Companies (TOCs) under Emergency Measure Agreements (EMAs) – In March 2020, the government announced emergency measures to ensure that rail services continued to operate in the context of the significantly-reduced passenger numbers. Payments to TOCs under the EMAs are provisionally being recorded as subsidies paid by central government. The ONS is therefore assessing if these new procedures should affect the statistical classification of the train operating companies within the UK national accounts. The result of the review will be announced as soon as possible.

Effects of the coronavirus pandemic not yet recorded in the public finances

• Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) are loan guarantee schemes created by the government to support UK businesses that are losing revenue and seeing their cashflow disrupted as a result of COVID-19. Using internationally agreed guidance, we have carried out a formal assessment of these schemes and concluded that the guarantees should be recorded as standardised in nature.

This means that an estimate of expected calls would be made and recorded as a liability for government from inception. Such provisions are not included in the scope of PSND, which will not be affected until the actual calls lead to government cash spending. However, it will increase the wider public sector net financial liabilities (PSNFL) measure at the time of guarantee inception rather than in the periods when calls are made.

Alongside the creation of provisions, expenditure in the form of a capital transfer will be recorded at inception of the guarantees, reflecting the amounts likely to be called. As a result, PSNB will also increase in the months the guarantees were provided, rather than in the months calls are actually made.

This treatment means that the impact of guarantee extension on PSNB and the value of the provisions for expected calls recorded on the balance sheet will better reflect the government's financial position. We will work further to develop the methodology with the aim of implementing in the public sector finances later in the year.

• The Bounce Back Loan Scheme (BBLS) is a scheme designed to enable businesses to access finance more quickly during the COVID-19 pandemic. While broadly similar to the earlier CBILS and CLBILS in design, it offers different terms and conditions and has unique features. We are therefore undertaking a formal assessment of the BBLS and will reach a formal classification decision in due course.

Our article Recent and upcoming changes to public sector finance statistics explains our provisional assessments of some of the largest COVID-19 schemes.

The coronavirus (COVID-19) pandemic has had an unprecedented impact on borrowing. Provisional estimates indicate that the £127.9 billion borrowed in the first quarter of the current financial year (April to June 2020) was more than double the £55.4 billion borrowed in the whole of the latest full financial year (April 2019 to March 2020).

These estimates of borrowing on an accrued (or national accounts) basis depend partly on tax receipt forecasts for future months. On 14 July 2020, the Office for Budget Responsibility (OBR) published their Fiscal sustainability report – July 2020. Alongside this report, the OBR published an update to their expectations of the impact of the pandemic on the economy, Coronavirus Reference Scenario (14 July 2020).

Due to the time constraints the Coronavirus Reference Scenario (14 July 2020) is not yet reflected in the accrued (or national accounts) based estimates of tax receipts included in this bulletin. This means that, with the exception of GDP, our estimates remain partially based on the OBR’s Coronavirus Reference Scenario (14 May 2020). We plan to incorporate these new data in our 21 August 2020 publication.

Figures published in the OBR's Coronavirus Reference Scenario (14 July 2020) suggest that borrowing in the current financial year (April 2020 to March 2021) could reach £322.0 billion, around six times the amount borrowed in the financial year ending March 2020.

Although the impact of the pandemic on the public finances is becoming clearer, its effects are not fully captured in this release, meaning that estimates of accrued tax receipts (on a national accounts basis), borrowing and GDP in particular are subject to greater than usual uncertainty. Given this uncertainty, and consistent with our approach in recent months, we place a greater emphasis than usual on our leading cash measure, the central government net cash requirement (CGNCR), the amount of cash needed immediately for the UK government to meet its obligations.

In June 2020, the public sector spent more money than it received in taxes and other income. Over this period, the public sector borrowed £35.5 billion, £28.3 billion more than it borrowed in June 2019. The substantial increases in borrowing in recent months reflect the emerging effects of government coronavirus (COVID-19) policies.

Estimates of accrued receipts (on a national accounts basis), expenditure and borrowing for the latest month of every release contain some forecast data. The initial outturn estimates for the early months of the financial year also contain more forecast data than other months, as profiles of tax receipts, along with departmental and local government spending, are still provisional. The degree of provisionality has been amplified by the uncertainty of the full impact of COVID-19, meaning that the data for these months are even more prone to revision than that of other months and can be subject to sizeable revisions in later months.

Figure 3 summarises how each of the five sub-sectors (central government, local government, non-financial public corporations, public sector pensions and the Bank of England (BoE)) contribute to the overall growth in monthly borrowing in June 2020 and compares this with the equivalent measures in the same month a year earlier (June 2019).

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

Public sector net borrowing by sub-sector, UK, June 2020 compared with June 2019

Source: Office for National Statistics – Public Sector Finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.

2. CGNB – Central government net borrowing.

3. LGNB – Local government net borrowing.

4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.

5. L&P – Land and property.

6. I & W – Income and wealth.

7. Contributions to EU – UK Value Added Tax (VAT), gross national income (GNI) and abatement contributions to the EU budget.

8. NICs – National Insurance contributions.

9. o/w – Of which.

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

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Central government receipts

In June 2020, central government receipts are estimated to have fallen by 16.5% compared with June 2019 to £49.4 billion, including £35.0 billion in taxes.

This month, tax revenue on a national accounts basis fell by 20.1% compared with June last year, with Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax receipts falling by 45.1%, 19.2% and 1.6% respectively.

These figures are always subject to some uncertainty, as many taxes such as VAT, Corporation Tax and PAYE contain some forecast cash receipts data and are liable to revision when actual cash receipts data are received.

Our article Challenges of measuring the effects of the coronavirus pandemic on tax receipts explains the ongoing challenges faced in measuring the effects of the COVID-19 pandemic on tax receipts on a national accounts (accruals) basis. The assumptions and exceptional adjustments we have made in recording taxes on a national accounts basis, explained in the article, are largely the same as those reported last month. However, we have applied an additional adjustment to PAYE Income Tax and Air Passenger Duty (APD).

The adjustments to both PAYE and APD receipts on an accrued (or national accounts) basis for June 2020 have used additional cash receipts information for May and June 2020 to inform a judgement on the repayment of arrears.

Central government expenditure

In June 2020, central government spent £80.5 billion, an increase of 24.8% on June 2019.

Of this, £77.9 billion was spent on its 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 £9.7 billion of expenditure on the current job furlough schemes; Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS)

• paying social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay)

• paying interest on the government's outstanding debt

The remaining £2.6 billion was spent on capital investment such as infrastructure.

Departmental expenditure on goods and services

Departmental expenditure on goods and services in June 2020 increased by £6.1 billion compared with June 2019, including a £4.6 billion increase in the purchase of goods and services and a £1.1 billion increase in expenditure on staff costs.

This increase in pay and procurement partially reflects expenditure by the Department of Health and Social Care (DHSC) to respond to the COVID-19 pandemic.

Subsidies paid by central government

In June 2020, subsidies paid by central government include both the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS).

These temporary schemes are designed to help employers pay wages and salaries to those employees who would otherwise be made redundant and to support self-employed workers.

In June 2020, central government subsidy expenditure was £12.4 billion, of which £9.1 billion were CJRS payments and £0.6 billion were SEISS payments.

Estimates of CJRS payments on an accrued (or national accounts) basis are currently based on the Office for Budget Responsibility (OBR) Coronavirus policy monitoring database, while SEISS payments are based on HM Revenue and Customs' (HMRC's) COVID-19 statistics. This month, we have updated our accrued estimates of CJRS to reflect the latest OBR estimates.

UK contributions to the EU

The UK contributions to the EU in June 2020 were £2.0 billion, an increase of £1.0 billion on June 2019. This increase is largely because of the monthly profile of 2020 payments made to the EU, rather than a reflection of any budgetary increase or in response to the pandemic.

Interest payments on the government's outstanding debt

Interest payments on the government's outstanding debt in June 2020 were £2.7 billion, a £4.6 billion decrease compared with June 2019. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged.

Local government and public corporations data

Both the local government and public corporations data for June 2020 are initial estimates, largely based on the OBR's Coronavirus Reference Scenario (14 May 2020).

Current and capital transfers between these 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-date (April to June 2020), the public sector borrowed £127.9 billion; this is £103.9 billion more than in the same period last year. This unprecedented increase largely reflects the impact of the pandemic on the public finances, with the furlough schemes (CJRS and SEISS) adding £37.6 billion in borrowing alone as subsidies paid by central government to the private sector.

Figure 6 summarises how each of the five sub-sectors (central government, local government, non-financial public corporations, public sector pensions and the Bank of England (BoE)) contribute to the overall growth in monthly public sector net borrowing excluding public sector banks (PSNB ex) in the latest financial year-to-date (April to June 2020) and compares this with the equivalent measures in the same period a year earlier.

Figure 6: How each sector contributes to the growth in borrowing

Public sector net borrowing by sub-sector, UK, latest financial year-to-date (April to June 2020) compared with the financial year ending March 2019

Source: Office for National Statistics – Public Sector Finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.

2. CGNB – Central government net borrowing.

3. LGNB – Local government net borrowing.

4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.

5. L&P – Land and property.

6. I & W – Income and wealth.

7. Contributions to EU – UK Value Added Tax (VAT), gross national income (GNI) and abatement contributions to the EU budget.

8. NICs – National Insurance contributions.

9. o/w – Of which.

Download this image Figure 6: How each sector contributes to the growth in borrowing

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Borrowing in the latest full financial year

This month, we publish the fourth provisional estimate of borrowing for the full financial year ending March 2020. Since the first estimate published on 23 April 2020, we have revised borrowing upwards by £6.7 billion, from £48.7 billion to £55.4 billion. This revision reflects the provisional nature of the data under normal circumstances as provisional data estimates are replaced by improved forecasts (and eventually outturn data). More notably, this revision reflects updated data being made available as the effects of the coronavirus pandemic on the public finances become clearer.

Borrowing had generally been falling since its peak in the financial year ending March 2010. However, borrowing in the latest full financial year (April 2019 to March 2020) was £14.7 billion more than in the previous financial year, largely because of the impact of the pandemic in March.

Figure 7: Borrowing in the latest financial year was around one-third (35%) of the amount borrowed in the financial year ending March 2010

Public sector net borrowing excluding public sector banks, UK, April 1993 to June 2020

Source: Office for National Statistics – Public Sector Finances

Notes:

1. Financial year 2019 to 2020 represents the financial year ending 2020 (April 2019 to March 2020).

2. Financial year-to-date represents April to June.

Download this image Figure 7: Borrowing in the latest financial year was around one-third (35%) of the amount borrowed in the financial year ending March 2010

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The central government net cash requirement excluding UK Asset Resolution Ltd, Network Rail and Covid Corporate Financing Facility (CGNCR ex) 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 ex consequently contains the most timely information and is less susceptible to revision. However, as for any cash measure, the CGNCR ex does not reflect the overall amount for which government is liable or the point at which any liability is incurred – it only reflects when cash is received and spent.

Table 1 demonstrates how the central government net cash requirement (CGNCR) is calculated from its 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 20 March 2020, the government introduced a Value Added Tax (VAT) payment deferral policy to support UK business during the coronavirus (COVID-19) pandemic by enabling them to pay VAT due between 20 March 2020 and 30 June 2020 at a later date (though before 31 March 2021). This policy has substantially lowered VAT cash receipts over this four-month period.

On the same day as we release the public sector finances, HM Revenue and Customs (HMRC) publish 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.

At the end of June 2020, the amount of money owed by the public sector to the private sector was just under £2.0 trillion (or £1,983.8 billion), which equates to 99.6% of gross domestic product (GDP).

Estimates of GDP used to create this ratio are partly based on provisional data and official estimates and are subject to greater than usual uncertainty. Since our previous publication (19 June 2020), our GDP estimates have increased reflecting the latest published data, leading to the debt ratio at the end of May 2020 falling from 100.9% to 96.9%.

On 23 April 2020, the Debt Management Office (DMO) published April 2020: Revision to the DMO's 2020 to 2021 Financing Remit for May to July 2020, in which it announced that it will raise £180 billion during the May to July 2020 (inclusive) period through issuance of conventional and index-linked gilts.

In June 2020, the DMO issued £55.6 billion in gilts at nominal value, raising £60.3 billion in cash. This continues the substantial month-on-month increase in gilts issuance (at nominal value) in the current financial year.

On 29 June 2020, the DMO published a revision to its financing remit for July and August 2020 in which it announced that it will raise a minimum of £275 billion during the April to August 2020 (inclusive) period through issuance of conventional and index-linked gilts. The DMO intends to hold 33 gilt auctions across July and August 2020, substantially more than the eight held over the same period in 2019.

The Bank of England's contribution to debt

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

Bank of England Asset Purchase Facility Fund

In March 2020, the BoE announced the expansion of its APFby £200 billion to a total of £645 billion. A further expansion of £100 billion was announced by the BoE in June 2020, taking the total stock of asset purchases financed by central bank reserves to £745 billion (at nominal value).

At the end of June 2020, the gilt-holding APF was £518.8 billion (at nominal value), an increase of £43.6 billion compared with a month earlier. Over the same period, the net gilt issuance by the DMO was £57.0 billion, which implies that gilt holdings by units other than the APF have grown by £13.4 billion since May 2020.

As a result of these gilt holdings, the impact of the APF on public sector net debt (PSND) stands at £113.9 billion, the difference between the nominal value of its gilt holdings and the market value it paid at the time of purchase. Note that the final debt impact of the APF depends on the disposal of the gilts at the end of the scheme.

Term Funding Scheme and Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises

In March 2020, the Bank of England announced the expansion of its Term Funding Scheme with the introduction of the Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME).

In June 2020, an additional £5.9 billion of loans were made under the TFSME scheme, bringing the total stock of loans under the Term Funding Scheme umbrella to £110.9 billion and so adding an equivalent amount to PSND.

If we were to remove the temporary debt impact of APF and Term Funding Scheme, public sector net debt excluding public sector banks (PSND ex) at the end of June 2020 would reduce by £192.9 billion (or 9.7% percentage points of GDP) to £1,790.9 billion (or 89.9% of GDP).

Figure 8: Debt as a percentage of GDP has been falling in recent financial years, but the measures introduced to address the coronavirus pandemic have increased this ratio considerably

Public sector net debt excluding public sector banks, UK, March 1994 to the end of June 2020

Source: Office for National Statistics – Public Sector Finances

Notes:

1. Includes Asset Purchase Facility (APF), which includes the Term Funding Scheme (TFS) and TFS incentives for small and medium-sized enterprises (TFS SME).

2. Public sector net debt excluding public sector banks (PSND ex) is the combination of PSND ex Bank of England (BoE) plus the BoE’s contribution to PSND ex.

3. PSND ex shown at the end of each financial year (March), unless otherwise stated.

Download this image Figure 8: Debt as a percentage of GDP has been falling in recent financial years, but the measures introduced to address the coronavirus pandemic have increased this ratio considerably

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Covid Corporate Financing Facility

In April 2020, we recorded the Covid Corporate Financing Facility (CCFF) for the first time. The CCFF is a scheme under which the BoE, acting for HM Treasury, buys commercial paper issued by larger, non-financial corporations, to help with their cashflow position. Our recording of the CCFF remains provisional and based on the information currently available.

At the end of June 2020, the CCFF increased the level of central government debt by £17.6 billion, reflecting the loan liability to the BoE. However, since the BoE owns the counterpart loan asset, there is an equal and offsetting reduction in the BoE's contribution to debt, meaning there is no net impact on PSND.

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 available and finally outturn.

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

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

Table 2 shows the revisions to the headline statistics presented in this bulletin compared with those presented in the previous bulletin (published on 19 June 2020).

Figures 9 and 10 show how each element of the public sector contributes to the revisions in borrowing for both the financial year-to-date (April and May 2020) and in the latest full financial year net borrowing.

Public sector net borrowing excluding public sector banks

This month, we have reduced our previous estimate of borrowing during April and May 2020 by £1.6 billion and £9.8 billion respectively, largely because of an increase in the previous estimate of central government tax receipts and National Insurance contributions (NICs).

These revisions reflect the uncertainty of the impact of the coronavirus on both future cash tax receipts. Further revisions are likely. We have published a short article explaining the Challenges of measuring the effects of the coronavirus pandemic on tax receipts, which we will update each month to reflect the latest information.

To estimate borrowing, tax receipts and NICs are recorded on an accrued (or national accounts) rather than on a cash receipt basis. In other words, we attempt to record receipts at the point where the liability arose, rather than when the tax is actually paid. This process means many receipts are provisional for the latest period(s) as they depend on both actual cash payments and on projections of future tax receipts (currently based on the Office for Budget Responsibility's (OBR's) Coronavirus Reference Scenario (14 May 2020), which are "accrued" (or time adjusted) back to the current month(s)).

Central government tax receipts and NICs for May 2020 have been increased by £6.6 billion and £2.3 billion respectively compared with those published in our previous bulletin (published 19 June 2020). Previous estimates of Pay As You Earn (PAYE) Income Tax increased by £4.2 billion and Value Added Tax (VAT) increased by £2.3 billion, both because of updated data.

Alcohol duty collected in May has increased by £0.5 billion (on a national accounts basis) compared with our previous estimate. A large proportion of this additional revenue relates to repayment of arrears of duty payments (or debt) from February, March and April 2020.

Central government current expenditure for May 2020 has been reduced by £0.7 billion compared with that published in our previous bulletin (published 19 June 2020).

We have updated our recording of the expenditure associated with the Coronavirus Job Retention Scheme (CJRS) to reflect the latest profiles, reducing it by £0.3 billion in May (and increasing it by £0.4 billion in April) 2020.

This month we have increased the previous estimate (published 19 June 2020) of current grants paid by central to local government by £0.2 billion in May (and £0.5 billion in April) 2020. These payments net out at a public sector level and so have no impact on public sector borrowing.

Figure 9: How each element of the public sector contributes to the revision in financial year-to-date (April to May 2020) net borrowing (PSNB ex)

Revisions to borrowing since the previous public sector finances bulletin (published on 19 June 2020), UK

Source: Office for National Statistics – Public Sector Finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.

2. CGNB – Central government net borrowing.

3. LGNB – Local government net borrowing.

4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.

5. L&P – Land and property.

6. I & W – Income and wealth.

7. Contributions to EU – UK Value Added Tax (VAT), gross national income (GNI) and abatement contributions to the EU budget.

8. NICs – National Insurance contributions.

9. o/w – Of which.

Download this image Figure 9: How each element of the public sector contributes to the revision in financial year-to-date (April to May 2020) net borrowing (PSNB ex)

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Figure 10: How each element of the public sector contributes to the revision in full financial year (April 2019 to March 2020) net borrowing (PSNB ex)

Revisions to borrowing since the previous public sector finances bulletin (published on 19 June 2020), UK

Source: Office for National Statistics – Public Sector Finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.

2. CGNB – Central government net borrowing.

3. LGNB – Local government net borrowing.

4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.

5. L&P – Land and property.

6. I & W – Income and wealth.

7. Contributions to EU – UK Value Added Tax (VAT), gross national income (GNI) and abatement contributions to the EU budget.

8. NICs – National Insurance contributions.

9. o/w – Of which.

Download this image Figure 10: How each element of the public sector contributes to the revision in full financial year (April 2019 to March 2020) net borrowing (PSNB ex)

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Public sector net debt as a percentage of GDP (excluding public sector banks)

Last month, we reported that in May 2020, debt as a percentage of gross domestic product (GDP) had exceeded 100% for the first time since the financial year ending March 1963. This month, we have reduced our May estimate by 4.0 percentage points, from 100.9% to 96.9%.

We noted that the estimates of GDP used to present debt and other headline measures are partly based on provisional published data and official expectations that would likely be revised substantially over time.

Since our last publication (19 June 2020), our GDP estimates for the May 2020 have increased by £74.0 billion, reflecting the latest published data. In particular, we have updated GDP for Quarter 1 (Jan to Mar) 2020 based on the quarterly national accounts published on 30 June 2020 and we have updated our GDP expectations for the subsequent three calendar quarters of 2020 to reflect the OBR's Coronavirus Reference Scenario (14 July 2020), having previously been based on expectations published in their Coronavirus Reference Scenario (14 May 2020).

Further, we have reduced our estimate of debt at the end of May 2020 by £3.1 billion because of updated local government asset holdings data.

The 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

Net investment refers to the balance of acquisition less disposals of capital assets and liabilities.

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)). Public sector net borrowing (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. Public sector net debt (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 Public sector finances – glossary.

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.

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

The possible impact of the coronavirus on our publishing timetable

The coronavirus (COVID-19) pandemic presents a significant challenge. We are working hard to ensure the UK government has the vital information needed to respond to the impact of this pandemic on our economy and society. But, inevitably, the disruption caused by the pandemic means we may need a little extra time to quality assure some of our data before publication.

We will review our publication dates and announce any future short delays in due course. We have released a public statement on COVID-19 and the production of statistics.

Gross domestic product (GDP) impact

Estimates of gross domestic product (GDP) used to present debt and other headline measures are partly based on provisional and official forecast data. Quarter 1 (Jan to Mar) 2020 is based on the published GDP quarterly national accounts, UK: January to March 2020. Estimates of GDP for the subsequent three calendar quarters are based on expectations published in the Office for Budget Responsibility's (OBR's) Coronavirus Reference Scenario (14 July 2020). These data do not represent official forecasts but are the latest published official estimates of the impact of the coronavirus on future GDP.

On 6 May 2020, we published Coronavirus and the effects on UK GDP, which explained how the global pandemic and the wider containment efforts are expected to impact on UK GDP as well as some of the challenges that National Statistical Institutes (NSIs) are currently facing.

Comparisons with official forecasts

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

The most recent official forecasts, presented in the OBR's Supplementary forecast (13 March 2020), were made before the full effects of the pandemic were apparent. It was widely recognised that these forecasts are likely to overstate future revenues. In turn, this made future downward revisions to revenues and upward revisions to borrowing more likely.

In May 2020, we updated our presentations to reflect the OBR's Coronavirus Reference Scenario (14 May 2020). The reference scenario assumes a three-month lockdown period followed by a gradual return to normal over the subsequent three months. These data do not represent official forecasts but are the latest published estimates made by the OBR of the impact of the coronavirus on future tax receipts.

On 14 July 2020, the OBR published their Fiscal sustainability report – July 2020 setting out long-term projections for spending, revenue and financial transactions and assessing whether they imply a sustainable path for public sector debt. Alongside this report, the OBR published an update to their Coronavirus Reference Scenario (14 May 2020). Due to the time constraints the Coronavirus Reference Scenario (14 July 2020) is not yet reflected in the accrued (or national accounts) based estimates of tax receipts included in this bulletin. This means that, with the exception of GDP, our estimates remain partially based on the OBR’s Coronavirus Reference Scenario (14 May 2020). We plan to incorporate these new data in our 21 August 2020 publication.

Table 3 presents the headline public sector finance fiscal aggregates published in both the OBR's Supplementary forecast (13 March 2020) and Coronavirus Reference Scenario (14 July 2020).

Departure from the EU

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.

These statistics, and our sector classification process, draw on the European System of Accounts (ESA) 2010, the Manual on Government Deficit and Debt, and associated guides.

After the transition period, we will continue to produce our public sector finance statistics in line with the UK Statistics Authority's Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards.

To ensure comparability with other countries, the statistical aggregates within the Public sector finances release will continue to be produced according to the existing definitions and standards until further notice or those standards are updated.

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.

Local government

Local government data for the financial year ending March 2020 are mainly based on budget data for England, Wales and Scotland as well as estimates for Northern Ireland.

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 the financial year ending March 2020, we include a £2.0 billion downward adjustment to England's current expenditure on goods and services, along with £0.7 billion, £0.6 billion and £0.2 billion adjustments to Scotland's, England's and Wales' capital expenditure respectively. We apply a further £3.0 billion downward adjustment to current expenditure on benefits in the financial year ending March 2020, 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.

Local government data for the financial year ending March 2021 are initial estimates, based on the Office for Budget Responsibility (OBR) forecasts. We have reflected our estimation of impact of the coronavirus (COVID-19) in these data.

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 the financial year ending March 2021 are initial estimates, based on the 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 the financial years ending March 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.