Public sector finances, UK: March 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: March 2021
• UK government debt and deficit: September 2020

On 30 April 2021, we will be publishing UK government debt and deficit: December 2020 in which we will present comparisons of government debt and net borrowing between the UK and the 27 European Union states up to December 2020.

• This release presents the first provisional estimates of UK public sector finances for the latest full financial year ending (FYE) March 2021; these are not final figures and they will be revised over the coming months as we replace our initial estimates with provisional and then final outturn data, and as more information on the effects of the coronavirus (COVID-19) pandemic becomes available.

• Public sector net borrowing (excluding public sector banks, PSNB ex) in the FYE March 2021 is estimated to have been £303.1 billion, £246.1 billion more than in the FYE March 2020 and the highest nominal public sector borrowing in any financial year since records began in the FYE March 1947.

• Expressed as a ratio of gross domestic product (GDP), public sector net borrowing (excluding public sector banks, PSNB ex) in the FYE March 2021 was 14.5%, the highest such ratio since the end of World War Two, when in FYE March 1946 it was 15.2%.

• Public sector net borrowing (excluding public sector banks, PSNB ex) in the FYE March 2021 is estimated to have been £24.3 billion less than the £327.4 billion expected by the Office for Budget Responsibility in their Economic and Fiscal outlook – March 2021 on a like for like basis.

• Central government tax receipts are estimated to have been £523.6 billion in the FYE March 2021 (on a national accounts basis), £34.2 billion lower than in the FYE March 2020, with notable falls in taxes on production such as Value Added Tax (VAT), Business Rates and Fuel Duty.

• Central government bodies are estimated to have spent £941.7 billion on day-to-day activities (current expenditure) in the FYE March 2021, £203.2 billion more than in the FYE March 2020; this includes £78.2 billion expenditure on Coronavirus job support schemes.

• Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £28.0 billion in March 2021, £21.0 billion more than in March 2020, which is the highest March borrowing since monthly records began in 1993.

• Public sector net debt (excluding public sector banks, PSND ex) was £2,141.7 billion at the end of March 2021 or around 97.7% of gross domestic product (GDP), maintaining a level not seen since the early 1960s.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £20.8 billion in March 2021, bringing the total for the FYE March 2021 to £334.5 billion, substantially more than in any other financial year period since records began in 1984.

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 financial year ending (FYE) March 2021 (April 2020 to March 2021) fell by £34.9 billion (or 5.0%) compared with the same period a year earlier, while government support for individuals and businesses during the pandemic contributed to an increase of £203.2 billion (or 27.5%) in central government day-to-day (or current) spending.

As a result of these low receipts and high expenditure, provisional estimates indicate that over the last 12 months the public sector borrowed £303.1 billion, £51.5 billion less than the £354.6 billion in the latest official forecasts published by the Office for Budget Responsibility (OBR) on 3 March 2021.

The OBR borrowing forecast for the FYE March 2021 includes an estimated £27.2 billion in expenditure on calls under the government loan guarantee schemes whereas Office for National Statistics (ONS) outturn data does not yet include any such estimates. Removing this estimate of expected calls from the OBR forecast, on a like for like basis, net borrowing in the FYE March 2021 is provisionally estimated to have been £24.3 billion less than forecast.

The extra funding required by 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 March 2021 was equivalent to 97.7% 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 in the accompanying Recent and upcoming changes to public sector finance statistics: March 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
• Local Restrictions Support Grant
• Closed Businesses Lockdown Payment
• 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

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, which include the Job Support Scheme (JSS) and the Recovery Loan Scheme.

In the Budget 2021, the Chancellor announced several new schemes in addition to the extension and expansion of some of these schemes. These include Restart Grants for businesses, a mortgage guarantee scheme and a UK-wide Recovery Loan Scheme aimed to replace the existing loan guarantee schemes. We will carry out an assessment of these schemes and explain their statistical impacts at the earliest possible opportunity.

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy and subsequently on public sector borrowing and debt with low receipts and high spending leading to record borrowing and increasing debt.

In the financial year ending (FYE) March 2021 (April 2020 to March 2021), the public sector borrowed £303.1 billion, £246.1 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 £78.2 billion to borrowing in the FYE March 2021.

Borrowing had generally been falling since its peak of £157.7 billion during the financial crisis in the FYE March 2010. However, largely as a result of the impact of the coronavirus pandemic, borrowing in the latest full financial year (April 2020 to March 2021) was nearly double this previous record.

Table 1 summarises the components of public sector net borrowing (excluding public sector banks) in the FYE March 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.

Central government

Central government is the largest sub-sector of the public sector. Of the £303.1 billion net borrowing by the public sector (excluding public sector banks) in the FYE March 2021, £310.5 billion was borrowed by central government, with other smaller sub-sectors in surplus or borrowing relatively low amounts.

Central government receipts

Central government receipts were estimated to have fallen by £34.0 billion in the FYE March 2021 compared with the FYE March 2020 to £722.8 billion, including £523.6 billion in tax receipts. Much of this fall occurred in the first half of the financial year (April to September), with the second half of the year showing some signs of recovery.

Table 2 summarises the components of central government receipts in the FYE March 2021 and compares them with the equivalent measures in the same period 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.

The data used to inform receipts on a national accounts basis are consistent with the Office for Budget Responsibility (OBR) Economic and fiscal outlook – March 2021 published on 3 March 2021.

PAYE Income Tax

PAYE Income Tax in recent months (on a national accounts basis) was stronger than initially expected by the OBR 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.

Customs duties

In estimating customs duty receipts on a national accounts (accrued) basis for January and February 2021, an adjustment has been made to account for customs duty from EU imports that has been deferred under the staged controls scheme.

Central government expenditure

Central government bodies spent £1,033.3 billion in FYE March 2021, £220.3 billion more than in FYE March 2020. Of this, £941.7 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

Accounting for depreciation, the remaining £60.7 billion was spent on capital investment such as infrastructure.

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

Interest payments on debt by central government

Interest payments on central government debt were £38.8 billion in the FYE March 2021, £9.3 billion less than in the FYE March 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 £63.1 billion more on goods and services in the FYE March 2021 than in the FYE March 2020, including £48.5 billion more on procurement and £14.4 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 including the COVID-19 Test and Trace programme and the cost of vaccines.

Subsidies paid by central government

As a part of the government support for individuals and businesses during the pandemic, subsidies paid by central government in the FYE March 2021 increased by £95.1 billion compared with the same period a year earlier. Of this £95.1 billion increase, £78.2 billion was paid as a part of the job furlough schemes, with £58.5 billion on the Coronavirus Job Retention Scheme (CJRS) and £19.7 billion on the Self Employment Income Support Scheme (SEISS).

CJRS payments on an accrued (or national accounts) basis for the period March 2020 to February 2021 are based on HM Revenue and Customs (HMRC) estimates, while March’s estimate is based on the OBR’s latest estimate in line with their Economic and fiscal outlook – March 2021 published on 3 March 2021.

SEISS payments are currently recorded on a cash basis, reflecting HMRC coronavirus statistics.

Additional subsidies were paid to the transport sector to help compensate for reduced passenger numbers during the pandemic. These transport subsidies account for some of the remaining £16.9 billion growth.

Business rates relief repayment

In response to the coronavirus pandemic, qualifying businesses in retail, leisure and hospitality were eligible for business rates relief (alternatively described as a business rates holiday or discount) for the 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 subsector, recorded at the point of payment.

Any central government receipt will reduce central government net borrowing and so public sector net borrowing by an amount equivalent to that receipt. It has no direct impact on the estimation of net cash requirement or net debt.

We will review the treatment of payments in lieu of the relief made in the financial year ending March 2022 at the earliest opportunity.

Local government borrowing

Local government borrowing was in surplus by £3.1 billion in the FYE March 2021, representing £9.8 billion less borrowing than in the FYE March 2020.

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.

Borrowing in March 2021

The public sector spent more than it received in taxes and other income in March 2021, requiring it to borrow £28.0 billion, £21.0 billion more than it borrowed in March 2020.

Table 4 summarises the components of public sector net borrowing (excluding public sector banks) in March 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 £28.0 billion net borrowing by the public sector (excluding public sector banks) in March 2021, £33.5 billion was borrowed by central government, with other smaller sub-sectors in surplus or borrowing relatively low amounts.

Central government receipts

Central government receipts were estimated to have fallen by £0.2 billion in March 2021 compared with March 2020 to £65.1 billion, including £46.7 billion in tax receipts.

Table 5 summarises the components of central government receipts in March 2021 and compares them with the equivalent measures in the same month a year earlier.

Central government expenditure

Central government bodies spent £98.6 billion in March 2021, £21.4 billion more than in March 2020. Of this, £84.7 billion was spent on day-to-day activities, while accounting for £2.6 billion in depreciation, the remaining £11.3 billion was spent on capital investment such as infrastructure.

Table 6 summarises the components of central government expenditure in March 2021 and compares them with the equivalent measures in the same month a year earlier.

Subsidies paid by central government

Central government paid £7.2 billion in subsidies to businesses and households in March 2021, £3.0 billion more than in March 2020. These additional payments included the cost of the job furlough schemes, with an additional £1.6 billion spent on the Coronavirus Job Retention Scheme (CJRS) compared with March 2020, the first month it was available.

This month we recorded a negative £6 million payment of Self Employment Income Support Scheme (SEISS). SEISS is recorded on a cash basis and this negative reflects the cash flows, the timing of payment windows and amendments to the value of grants, rather than the underlying activity.

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 future payments such as those outlined in the Withdrawal Agreement will be made in due course.

Local government and public corporations

Both local government and public corporations’ data for March 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, the Local Restrictions Support Grant 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 where available.

Central government current transfers to local government were £15.1 billion in March 2021, £1.9 billion higher than in March 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. 

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.

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.

NatWest Group plc share sales

On 19 March 2021, the government announced the sale of £1.1 billion of its holding in NatWest Group plc. As with similar sales the cash raised impacts directly on central government net cash requirement and indirectly on net debt in the month the payment was received – in this case central government net cash requirement in March 2021 was reduced by £1.1 billion as a result of the sale. Net borrowing is unaffected by the sale of assets.

Bradford and Bingley plc and Northern Rock Asset Management Ltd share sales

On 26 February 2021, the government announced the £5.0 billion sale of Bradford and Bingley plc and NRAM (Northern Rock Asset Management) Limited. As with similar sales the cash raised impacts directly on central government net cash requirement and indirectly on net debt in the month the payment was received – in this case central government net cash requirement in March 2021 was reduced by £4.5 billion as a result of the sale. We expect the remaining balance of £0.5 billion from this sale to be paid in August 2021. Net borrowing is unaffected by the sale of assets.

Value Added Tax deferrals

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.

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. This month we completed a short exercise to align our historical tax data with those published in HMRC’s cash report for the financial year ending March 2013 to the financial year ending March 2017. This exercise consisted of a reallocation of some cash receipts between tax headings and has had no impact on the cash receipts paid over by HMRC to HM Treasury or central government net cash requirement.

Public sector net debt (excluding public sector banks) stood at £2,141.7 billion at the end of March 2021, an increase of £344 billion on a year earlier.

This increase was largely because of the extra funding required to finance the coronavirus (COVID-19) pandemic support schemes, combined with reduced cash receipts.

The increase in debt over this period combined with 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 March 2021 was equivalent to 97.7% 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.

There were £1,861.6 billion of central government gilts in circulation at the end of March 2021 (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.

Foreign currency bonds

On 25 March 2021, the UK government issued £500 million in its second sovereign Sukuk sale.

The settlement date for this transaction is 1 April 2021, from which point it will be recorded as a component of central government gross debt, increasing it by a corresponding amount.

The Sharia compliant bond has a long five-year maturity (22 July 2026) and, as with the UK’s first Sukuk issue (matured 22 July 2019), employs the commonly used Al-ljara structure.

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 March 2021 would reduce by £222.2 billion (or 10.2 percentage points of GDP) to £1,919.5 billion (or 87.5% 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 March 2021, the gilt holdings of the APF were £660.0 billion at face (or redemption) value, an increase of £21.1 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 £114.2 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 March 2021 stood at £19.9 billion, adding an equivalent amount to the level of debt.

The Bank of England publish the gilt portfolio of the Asset Purchase Facility Fund, along with its corporate bond purchases and the activity of the Term Funding Schemes.

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.

The TFS loan liability stood at £28.9 billion and the TFSME loan liability stood at £74.1 billion at the end of March 2021, making a combined liability of £103.0 billion, adding an equivalent amount to the level of debt.

Assets purchased under the TFS and TFSME fall outside the boundary of public sector net debt excluding public sector banks (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-February 2021

This month we have reduced our previous estimate of borrowing in the financial year-to-February 2021 by £3.6 billion.

Improved data have led to a £4.6 billion reduction in our previous estimate of central government borrowing over this period, largely because of a decrease in previous estimates of central government procurement coupled with an overall increase in our previous estimate of tax receipts. Further, we have reduced our estimates of current grants paid by central to local government by £0.9 billion in the financial year-to-February 2021. While central government borrowing reduced by £0.9 billion as a result of this update, local government borrowing was increased by an equal and offsetting amount over the same period.

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 (on 19 March 2021).

Revisions to central government current receipts in the financial year-to-February 2021

Table 10 summarises the revisions to central government receipts by comparing them with the equivalent measures published in the previous bulletin (on 19 March 2021).

Tax receipts and National Insurance contributions

The data used to inform receipts on a national accounts basis are partially based on forecast cash receipts consistent with the Office for Budget Responsibility (OBR) Economic and fiscal outlook (EFO) – March 2021 and so are prone to revision as outturn data replaces forecast.

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.

Central government current expenditure in the financial year-to-February 2021

Table 11 summarises the revisions to central government expenditure by comparing them with the equivalent measures published in the previous bulletin (on 19 March 2021).

Revisions to procurement

Throughout the coronavirus pandemic our estimates of central government procurement of goods and services have contained a larger proportion of estimated data than is usual and as a result have been prone to substantial revisions. This month we have reduced our previous estimate in the financial year-to-February 2021 by £1.8 billion.

Revisions to borrowing in earlier years

This month we completed a short exercise to align our historical cash data with that published in Summary of HMRC tax receipts, National Insurance contributions (NICs), tax credit expenditure and Child Benefit for the UK for the financial year ending March 2013 to the financial year ending March 2017.

This exercise consisted of a reallocation of some cash receipts between taxes and other receipts categories and while having no impact on central government net cash requirement, because of the tax-specific accruals methodologies applied to cash data in order to present it on an accrued (or national accounts) basis, there have been some revisions to central government net borrowing in these historical periods. The most notable revision is for National Insurance contributions in the financial year ending March 2017, which we have reduced by £0.5 billion, leading to a corresponding increase in net borrowing.

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 (on 19 March 2021).

Revision to public sector net debt

This month we have increased our previous estimate of the debt at the end of February 2021 by £0.4 billion.

Quality assurance work by HM Treasury has led to an increase in the recorded size of cash bank balances resulting in a reduction in the level of central government (and public sector) net debt of £0.5 billion in each month from April 2020 to February 2021. However, in both January and February these reductions have been offset because of our regular data updates reducing central government liquid assets.

Also, this month we have updated our recording of a £0.5 billion loan between Crossrail and Network Rail that ended in May 2017. As this represents a loan between the central and local government subsectors, this update had no impact on either general government or public sector debt for the period the loan was mis-recorded. However, the level of central government gross debt was reduced by £0.5 billion between June 2017 and February 2021, with an equal and offsetting increase in the estimated cross-holdings of debt between central and local government.

Revisions to public sector net debt as a ratio of GDP

This month we have updated our gross domestic product (GDP) estimates to incorporate GDP quarterly national accounts, UK: October to December 2020 published on 31 March 2021.

As a result, we have increased our previously published estimate of public sector net debt (excluding public sector banks) expressed as a ratio of GDP back to July 2020, though these revisions do not exceed 0.1% in any single month during this period.

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

Expected updates to HMRC tax data

After the publication of the February public sector finances release (19 March 2021), HMRC identified an issue with their tax receipts statistics publication. HMRC are currently investigating data relating to cash receipts for a small number of taxes for the financial year ending March 2019, which they believe have been mis-stated.

Any changes to estimated tax receipts on a cash basis will have an impact on data published in this release. Higher cash tax receipts are likely to lead to higher estimates of tax receipts on an accrued, or national accounts basis, and consequently to lower estimates of public sector net borrowing (PSNB).

HMRC’s investigations to date have indicated that correcting this issue will induce minor upward revisions to HMRC cash receipts of around 0.1% in the financial year ending March 2019, and that more recent years are not affected.

HMRC currently expect to provide corrected data in time for the next public sector finances release on 25 May 2021.  

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 Office for National Statistics (ONS) is publishing more data and analysis than ever before. We are constantly reviewing our publications based on your feedback to make sure that we continue to meet the needs of our users. As a result, future editions of this publication may focus more strongly on headline indicators and main messages. Thank you for your continued support and we value your feedback.

Methodological guidance

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 (FYE) March 2021 presented in Table 13 reflect those published in the OBR’s Economic and fiscal outlook – March 2021 published on 3 March 2021.

The OBR borrowing forecast for the FYE March 2021 includes an estimated £27.2 billion in expenditure on calls under the government loan guarantee schemes whereas Office for National Statistics (ONS) outturn data does not yet include any such estimates. Removing this estimate of expected calls from the OBR forecast, on a like for like basis, net borrowing in the FYE March 2021 is provisionally estimated to have been £24.3 billion less than forecast.

International comparisons

On 30 April 2021, we will be publishing UK government debt and deficit: December 2020 in which we will present comparisons of government debt and net borrowing between the UK and the 27 European Union states up to December 2020.

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 later 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 March 2021 estimate of GDP requires data across four quarters of GDP. Of these, one is 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 quarterly national accounts, UK: October to December 2020 published on 31 March 2021

• 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 – March 2021 published on 3 March 2021

Table PSA5A, published as a part of Public sector finances tables 1 to 10: Appendix A presents our headline series as a ratio of GDP up to and including the financial year ending March 2021. As the ONS are yet to publish an estimate of GDP for Quarter 1 (January to March) 2021, we have used an estimate based on the latest OBR forecast to complete the presentation consistent with the previous explanation.

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 £8.5 billion upward adjustment to budget forecast data (which predates the coronavirus pandemic) for England’s current expenditure on goods and services, and a £4.6 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

The data used to inform receipts on a national accounts basis are consistent with the Office for Budget Responsibility (OBR) Economic and fiscal outlook (EFO) – March 2021 published on 3 March 2021.

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 March are based on forecast April cash receipts.

March 2021 receipts on a national accounts basis are consistent with OBR’s EFO – March 2021, but with some additional adjustments as described in this section.

The amount of accrued receipts for PAYE Income Tax in recent months 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 January and February against those published in the EFO to make an upward adjustment to March’s accrued PAYE receipts. Further, we have adjusted February’s data to account for non-payment of new liabilities and payments of older outstanding liabilities.

We currently assume that most non-paid tax due between April 2020 and March 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 March depend on forecast cash receipts for April, May and June. 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 on a national accounts basis are consistent with OBR’s EFO – March 2021, published on 3 March 2021, adjusted to account for the impacts of the deferral scheme and subsequent payments of deferred VAT. The existence of this deferral assumption within accrued VAT means that they are subject to revision as further information is gathered on 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, Corporation Tax data are consistent with OBR’s EFO – March 2021. 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 consistent with OBR’s EFO – March 2021.

In estimating APD receipts on an accrued (or national accounts) basis for February 2020 to February 2021, we have used additional cash receipts information up to and including March 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 consistent with OBR’s EFO – March 2021. In estimating alcohol receipts on an accrued (or national accounts) basis for February 2020 to February 2021, we have used additional cash receipts information up to and including March 2021 to inform a judgement on the repayment of arrears.

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 subsector, recorded at the point of payment.

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