Public sector finances, UK: October 2020

• Recent and upcoming changes to public sector finance statistics: October 2020

• Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £22.3 billion in October 2020, £10.8 billion more than in October 2019, which is both the highest October borrowing and the sixth-highest borrowing in any month since monthly records began in 1993.

• Central government tax receipts are estimated to have been £39.7 billion in October 2020 (on a national accounts basis), £2.7 billion less than in October 2019, with falls in Value Added Tax (VAT), Business Rates and Pay As You Earn (PAYE) income tax.

• Central government bodies are estimated to have spent £71.3 billion on day-to-day activities (current expenditure) in October 2020, £6.4 billion more than in October 2019; this growth includes £1.3 billion in Coronavirus Job Retention Scheme (CJRS) and £0.3 billion in Self Employment Income Support Scheme (SEISS) payments.

• Public sector net borrowing (PSNB ex) in the first seven months of this financial year (April to October 2020) is estimated to have been £214.9 billion, £169.1 billion more than in the same period last year and the highest public sector borrowing in any April to October period since records began in 1993.

• Public sector net debt excluding public sector banks (PSND ex) rose by £276.3 billion in the first seven months of the financial year to reach £2,076.8 billion at the end of October 2020, or around 100.8% of gross domestic product (GDP); debt to GDP ratios in recent months have reached levels last seen in the early 1960s.

• General government net borrowing in the first seven months of this financial year (April to October 2020) is estimated to have been around 9.9% GDP, while general government gross debt stood at around 104.7% of GDP at the end of October 2020; statistics for the general government sector are used for international comparisons and include central and local government only.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £14.4 billion in October 2020, bringing the current financial year-to-October total to £260.8 billion, nearly three times the highest cash requirement in any other April to October period (since records began in 1984).
   

The coronavirus (COVID-19) pandemic has had a substantial impact on public sector borrowing. Official OBR estimates (XLS, 201KB) published on 21 August 2020 indicate that the £214.9 billion borrowed by the public sector in the financial year-to-October 2020 could reach £372.2 billion by the end of March 2021. The Office for Budget Responsibility will publish updated forecast data on 25 November 2020 in their Economic and fiscal outlook.

Central government tax and national insurance receipts (combined) in the seven months-to-October 2020 fell by £38.3 billion (or 9.7%) compared with the same period in 2019, while government support for individuals and businesses during the pandemic contributed to an increase of £123.5 billion (or 28.5%) in central government day-to-day (or current) spending.

The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s.

Public Sector Net Debt (excluding public sector banks) at the end of October 2020 was equivalent to 100.8% of GDP.

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) and borrowing are subject to greater than usual uncertainty.

Estimates of tax receipts presented in this bulletin are partially based official projections published by the Office For Budget Responsibility (OBR) in their Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB).

These projections will be superseded with official forecasts published by the OBR on Wednesday 25 November 2020 in their Economic and fiscal outlook – November 2020. We will work with HMRC with the intention of fully incorporating these forecasts in the December 2020 Public sector finances release (published 22 January 2021).

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

In total, over 40 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 11 of this release and the accompanying Recent and upcoming changes to public sector finances, October 2020 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
• some subsidies paid out to businesses

On 5 November 2020, the government announced the extension of its current job furlough schemes CJRS and SEISS to the end of March 2021.

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. This group includes the following schemes:

• Job Support Scheme (JSS)
• Local Restrictions Support Grant

In October 2020, the public sector spent more money than it received in taxes and other income, requiring it to borrow £22.3 billion, £10.8 billion more than it borrowed in October 2019.

Table 1 summarises the components of public sector net borrowing (excluding public sector banks) in October 2020 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 £22.3 billion borrowed by the public sector in October 2020, £18.9 billion was borrowed by central government.

Central government receipts

In October 2020, central government receipts were estimated to have fallen by £1.7 billion compared with October 2019 to £58.8 billion, including £39.7 billion in tax receipts. 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.

Central government expenditure

Central government bodies spent £75.1 billion in October 2020, £8.3 billion more than in October 2019. Of this, £71.3 billion was spent on day-to-day activities (often referred to as current expenditure), such as:

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

The remaining £3.8 billion was spent on capital investment such as infrastructure.

Central government’s expenditure on goods and services

Central government departments spent £6.3 billion more on goods and services in October 2020 than in October 2019, including £5.4 billion more on procurement and £1.1 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.

Subsidies paid by central government

In October 2020, central government paid £4.3 billion in subsidies to businesses and households. These payments included £1.3 billion as a part of the Coronavirus Job Retention Scheme (CJRS) and £0.3 billion as part of the Self Employment Income Support Scheme (SEISS). On 5 November 2020, the government announced the extension of both its job furlough schemes to the end of March 2021.

Interest payments on the central government’s outstanding debt

Interest payments on the government’s outstanding debt were £2.0 billion in October 2020, £4.4 billion less than in October 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

Both local government and public corporations data for October 2020 are initial estimates, largely based on the Office for Budget Responsibility’s (OBR’s) Coronavirus Reference Scenario (14 July 2020) and Fiscal Sustainability Report (July 2020), which will be revised when further information is available.

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

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

Borrowing in the current financial year-to-date

In the current financial year to October 2020, the public sector borrowed £214.9 billion, £169.1 billion more than in the same period last year.

This substantial increase largely reflects the impact of the pandemic on the public finances, with the furlough schemes (CJRS and SEISS) alone adding £54.4 billion to borrowing in the financial year-to-October 2020.

Coronavirus Job Retention Scheme (CJRS) payments on an accrued (or national accounts) basis for the period March to October 2020 are based on HM Revenue and Customs (HMRC) estimates. SEISS payments are currently recorded on a cash basis, reflecting HMRC coronavirus statistics.

During August 2020, the government ran its Eat Out to Help Out scheme, which offered a discount to diners. This discount, provisionally estimated at £0.5 billion was reimbursed to participating businesses by HMRC and, like CJRS and SEISS, is recorded as subsidy paid by central government.

Further, on 8 July 2020, the government announced that it would introduce a temporary reduction of VAT rate in certain hospitality sectors from 15 July 2020 to 12 January 2021, subsequently extended to 31 March 2022.

Table 2 summarises the components of public sector net borrowing (excluding public sector banks) in the financial year-to-October 2020 and compares them with the equivalent measures in the same period a year earlier. Additionally, the table presents estimates of the borrowing of public sector banks and the full public sector net borrowing measure.

Borrowing in the latest full financial year

Borrowing had generally been falling since its peak in the financial year ending (FYE) 2010. However, the £56.1 billion borrowed in the latest full financial year (April 2019 to March 2020) was £17.1 billion more in the previous financial year, largely because of the impact of the pandemic evident from March 2020.

The borrowing estimates presented in this bulletin are not adjusted for inflation. We recommend that users consider borrowing as a percentage of gross domestic product (GDP) when analysing its movements over a long period.

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

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

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

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

Tables 3 and 4 demonstrate how CGNCR is calculated from cash receipts and cash outlays. This presentation focuses on the central government’s own account and excludes cash payments to both local government and public non-financial corporations.

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

Public sector net debt (excluding public sector banks) rose by £276.3 billion in the first seven months of the financial year to reach £2,076.8 billion at the end of October 2020, £283.8 billion more than in October 2019.

The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Public Sector Net Debt (excluding public sector banks) at the end of October 2020 was equivalent to 100.8% of GDP.

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

At the end of October 2020, there was £1,774.9 billion of central government gilts in circulation (including those held by the Bank of England (BoE) Asset Purchase Facility Fund). These gilts are auctioned by the Debt Management Office (DMO), on behalf of central government in accordance with its financing remit.

There has been a substantial month-on-month 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 (COVID-19) support schemes and to compensate for the fall in tax revenue.

The Bank of England’s contribution to debt

The Bank of England (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 (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 October 2020 would reduce by £232.9 billion (or 11.3 percentage points of GDP) to £1,843.9 billion (or 89.5% of GDP).

Bank of England Asset Purchase Facility Fund

Gilts are the primary financial instrument purchased under the APF. At the end of October 2020, the gilt holdings of the APF were £584.8 billion at face (or redemption) value, an increase of £15.6 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 £107.8 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 end of October 2020 stood at £20.1 billion, adding an equivalent amount to the level of debt.

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

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

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

At the end of October 2020, TFS loan liability stood at £70.7 billion and TFSME loan liability stood at £48.5 billion making a combined liability of £119.2 billion, adding an equivalent amount to the level of debt.

Assets purchased under the TFS and TFSME fall outside the boundary of PSNDex: 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.

Table 5A shows the revisions to net borrowing presented in this bulletin compared with those presented in the previous bulletin (published on 21 October 2020).

Table 5B shows the revisions to public sector net debt and net cash requirement presented in this bulletin compared with those presented in the previous bulletin (published on 21 October 2020).

Public sector net borrowing (excluding public sector banks) in the financial year-to-September 2020

This month we have reduced our previous estimate of borrowing in the financial year-to-September 2020 by £15.9 billion, largely because of a £5.7 billion increase to the previous estimates of Value Added Tax (VAT) receipts and a £6.9 billion reduction to the previous estimates of expenditure on the Coronavirus Job Retention Scheme (CJRS ) (recorded as a subsidy paid by central government).

VAT receipts

VAT receipts 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 October depend on forecast cash receipts for November, December and January. These are updated as actual receipts become known.

VAT cash receipts are currently substantially outperforming those estimated in the OBR’s Fiscal Sustainability Report (FSR) and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB) on which our current forecasts are based. In November 2020 HMRC, ONS, HMT and the OBR determined that an exceptional adjustments would be applied to the estimates of accrued VAT receipts for August, September and October 2020.

These exceptional adjustments are needed because cash receipts in recent months have been higher than was anticipated in the OBR forecasts. We will continue to review and apply adjustments to future months as necessary.

Section 11 explains the challenges of measuring the effects of the coronavirus pandemic on tax receipts and discusses the recording of tax receipts in some detail.

CJRS payments

This month we have reduced our previous estimate of CJRS payments on an accrued (or national accounts) basis for the period March to October 2020.

Previously, data for the period March to June were based on HMRC’s initial estimates while data for the period July to September were based on OBR projections. These estimates have been replaced with updated HM Revenue and Customs (HMRC) estimates.

Table 6 shows how each element of the public sector contributes to the revisions in borrowing compared with our previous publication (21 October 2020). The table presents revisions to both the financial year-to-September 2020 and to September 2020 alone.

Public sector net borrowing (excluding public sector banks) in the financial year ending 2020

This month we have increased our previous estimate of borrowing in the financial year ending (FYE) 2020 by £1.5 billion, largely because of a £2.1 billion reduction to the previous estimate of central government tax receipts and National Insurance contributions in this period.

On 5 November 2020, HMRC published their Trust Statement and Annual Report and Accounts (PDF, 16.2MB) . This regular exercise results in adjustments to previously published data for the period April 2019 to March 2020.

Further, this month we reduced our previous estimate of expenditure on current grants paid by central government to the private sector and rest of the world by £0.7 billion as new data replaced previous estimates.

Public sector net debt (excluding public sector banks)

This month we have reduced our previously published estimate of debt at the end of September 2020 by £1.2 billion to £2,058.5 billion. This was largely because of the reclassification of Registered Housing Associations in Northern Ireland with effect from August to the private non-financial corporations subsector, reducing public corporations’ net debt by £1.0 billion at the end of August and September 2020.

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

This month we have updated our estimate of GDP in Quarter 3 (July to Sept ) 2020 based on the published GDP first quarterly estimate, UK: July to September 2020, increasing our previous estimate, based on Office for Budget Responsibility (OBR) projections, by £43.2 billion.

As a result, we have reduced our estimate of debt as a percentage of GDP at the end of September 2020 by 2.3 percentage points, from the 103.5% published last month to 103.5%.

Further, as a result of this increase in GDP, we have reduced our ratio of debt to GDP from January 2020 to date. We have published an article that explains how estimates of GDP are used to present debt and other headline measures.

Public sector net debt (including public sector banks)

Estimates of the net debt of public sector banks are derived from the balance sheet of these organisations, supplied to us by the Bank of England twice annually.

This month we have received a balance sheet covering the period January to June 2020 for the first time, reducing our previous estimate of the net debt of the public sector banks by £20.6 billion at the end of June 2020 and increasing our corresponding estimates of net cash requirement by £1.9 billion in each month from January 2020.

These data have enabled us to improve previous estimates of debt and to inform our current estimates beyond June 2020.

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

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

Public sector net borrowing

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

Public sector net cash requirement

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

Public sector net debt

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

Debt interest to revenue ratio

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

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

The Monthly statistics on the public sector finances: a methodological guide provides comprehensive contextual and methodological information concerning the monthly public sector finances statistical bulletin. The guide sets out the conceptual and fiscal policy context for the bulletin, identifies the main fiscal measures, and explains how these are derived and interrelated. Additionally, it details the data sources used to compile the monthly estimates of the fiscal position.

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 most recent official forecasts, presented in the OBR’s Supplementary forecast (13 March 2020) were made before the full effects of the coronavirus (COVID-19) pandemic were apparent.

On 14 April 2020, the OBR published an illustrative three-month lockdown scenario that assessed the potential impact of the coronavirus pandemic on the economy and public finances. These estimates have been further refined as more information on the impact of the pandemic on the UK economy has developed.

The official OBR expectations for the financial year ending (FYE) 2020 presented in this bulletin reflect those published OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB). These projections will be superseded with official forecasts published by OBR on Wednesday 25 November 2020 in their Economic and fiscal outlook – November 2020. We will work with HMRC with the intention of reflecting these forecasts in the December 2020 Public sector finances release (published 22 January 2021).

Table 7 compares these expectations with our latest headline public sector finance fiscal aggregates.  

International comparisons

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

On 19 October 2020, we published UK government debt and deficit: June 2020, consistent with Public sector finances, UK: August 2020 (published on 25 September 2020).

These statistics were published by Eurostat on 22 October 2020 alongside comparable data for each of the 27 EU member states for general government gross debt and borrowing.

Figure 10 illustrates how the recent change in UK general government consolidated gross debt (or Maastricht debt) compares with selected EU member states.

Measured according to the Maastricht definition, UK government debt increased by 11.2 percentage points of GDP between the end of December 2019 and the end of June 2020. This increase was higher than the average of the 27 EU member states.

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.

Gross domestic product (GDP)

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

October 2020 requires data across five quarters of GDP. Of these, two are based on the latest Office for National Statistics (ONS) published data and three are based on official Office for Budget Responsibility (OBR) projections :

• data up to and including Quarter 3 (July to Sept) 2020 are based on the published GDP first quarterly estimate, UK: July to September 2020.

• estimates of GDP for the subsequent three calendar quarters (August 2020 to June 2021) are based on expectations published in the OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB)

Local government

Local government data for the financial year ending (FYE) 2020 are mainly based on budget data for England, Wales and Scotland, and estimates for Northern Ireland. Some provisional outturn data for FYE 2020 have been included where available (England capital expenditure).

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 £2.0 billion downward adjustment to England’s current expenditure on goods and services, along with a £0.2 billion adjustment to Wales’ capital expenditure. We apply a further £2.3 billion downward adjustment to current expenditure on benefits in FYE 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 FYE 2021 are initial estimates, based on OBR forecasts. These figures reflect our initial estimates of the impact of the coronavirus (COVID-19) pandemic. For FYE 2021, these estimates include a £3.0 billion upward adjustment to budget forecast data for England’s current expenditure on goods and services. We have included £0.5 billion and £0.2 billion downward adjustments to Scotland’s and Wales’ capital expenditure respectively. We apply a further £0.8 billion adjustment to budget forecast current expenditure on benefits in FYE 2021, to reflect the most recently available data for housing benefits.

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 FYEs 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.  

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 OBR.

Estimating future tax receipts

Expectations of future tax receipts used in our accrued estimates are based on those published in the OBR’s Fiscal Sustainability Report (FSR) and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB).

These projections will be superseded with official forecasts published by OBR on Wednesday 25 November 2020 in their Economic and fiscal outlook – November 2020. We will work with HMRC with the intention of fully incorporating these forecasts in the December 2020 Public sector finances (published 22 January 2021).

Exceptional adjustments

The ONS and HM Treasury have been working with both HM Revenue and Customs (HMRC) and 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 October 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 October are based on forecast November cash receipts.

The amount of cash received for PAYE Income Tax in October 2020 was lower than usual, with much of that weakness likely attributable to lower earnings and employment and non-payment of liabilities. October 2020 receipts recorded on an accrued basis are estimated based on the OBR’s FSR, but with some additional adjustments as described below.

We currently assume that most non-paid tax due between April and October 2020 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.

In estimating PAYE receipts on an accrued basis for October 2020, we have used additional cash receipts information for May to October 2020 to inform a judgement on the repayment of arrears (or debt) in June to October 2020. We have also included an upward adjustment for October because PAYE receipts in recent months have been notably higher than was anticipated in the OBR’s estimates published on 21 August 2020.

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 October depend on forecast cash receipts for November, December and January. 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 all the deferred tax owed will still be paid, but in a later period than originally expected, as is permitted under the deferral scheme. We have therefore made an exceptional adjustment to prevent the effects of the deferral scheme on VAT receipts from affecting accrued receipts.

Receipts forecasts are based on the OBR’s FSR, adjusted to account for the impacts of the deferral scheme. These profiles do not yet consider the announcement on 24 September 2020 that enables companies to opt to spread repayments of deferred VAT across the financial year ending 2022.

The existence of this deferral assumption within accrued VAT means that they are subject to revision once further intelligence is gathered on deferred VAT.

VAT cash receipts are currently substantially outperforming those estimated in OBR’s Fiscal Sustainability Report (FSR) and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB) on which our current forecasts are based. In November 2020 HMRC, ONS, HMT and OBR determined that an exceptional adjustment would be applied to the estimates of accrued VAT receipts for August, September and October 2020. These exceptional adjustments are needed because cash receipts in recent months have been higher than was anticipated in the OBR forecasts. We will continue to review and apply adjustments to future months as necessary.

VAT on an accrued basis should be considered as provisional from December 2019 onwards until a final determination has been made on the deferrals.

There are not enough data available yet on which to estimate the amount of VAT that will not be paid because of lower economic activity or businesses ceasing to trade.

Corporation Tax

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

As with PAYE and VAT, estimates of future months’ cash receipts are currently based on the OBR’s FSR. 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 FSR implicitly includes an element of non-payment through calibration to outturn receipts observed to mid-June 2020.

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

Air Passenger Duty

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

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

Alcohol

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

In estimating alcohol receipts on an accrued (or national accounts) basis for February to September 2020, we have used additional cash receipts information up to and including October 2020 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. These numbers are provisional and may be revised when further information becomes available.

Other taxes

Limited information has meant that those taxes like Council Tax, not specifically profiled in OBR’s FSR may be overestimated. Such taxes will be reviewed over the coming months when more information becomes available.