Public sector finances, UK: September 2020

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: September 2020

• Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £36.1 billion in September 2020, £28.4 billion more than in September 2019 and the third-highest borrowing in any month since records began in 1993.

• Central government tax receipts are estimated to have been £37.7 billion in September 2020 (on a national accounts basis), £6.0 billion less than in September 2019, with large falls in Value Added Tax (VAT), Business Rates and Corporation Tax receipts.

• Central government bodies are estimated to have spent £77.8 billion on day-to-day activities (current expenditure) in September 2020, £18.1 billion more than in September 2019; this includes £4.9 billion in Coronavirus Job Retention Scheme (CJRS) and £1.0 billion in Self Employment Income Support Scheme (SEISS) payments.

• Borrowing (PSNB ex) in the first six months of this financial year (April to September 2020) is estimated to have been £208.5 billion, £174.5 billion more than in the same period last year and the highest borrowing in any April to September period since records began in 1993; each of the six months from April to September 2020 were also records.

• Central government net cash requirement (CGNCR) (excluding UK Asset Resolution Ltd and Network Rail) was £25.2 billion in September 2020, £10.4 billion more than in September 2019 and the highest cash requirement in any September since 2008.

• CGNCR in the current financial year-to-date (April to September 2020) was £246.4 billion, nearly three times the highest cash requirement in any other April to September period on record (records began in 1984).

• Public debt (public sector net debt excluding public sector banks, PSND ex) rose by £259.2 billion in the first six months of the financial year to reach £2,059.7 billion at the end of September 2020, or around 103.5% of gross domestic product (GDP); this was the highest debt to GDP ratio since the financial year ending (FYE) 1960.

The coronavirus (COVID-19) pandemic has had an impact on public sector borrowing that is unprecedented in peacetime.

Provisional estimates indicate that the £208.5 billion borrowed in the first half of the current financial year (April to September 2020) was nearly four times the £54.5 billion borrowed in the whole of the last full financial year (April 2019 to March 2020).

Central government tax receipts and National Insurance contributions (combined) in the six months between April and September 2020 fell by 11.6% compared with the same period in 2019. Over the same period, the government’s support for individuals and businesses contributed to an increase of 34.0% in central government’s day-to-day spending compared with a year earlier.

Figures published in the Office for Budget Responsibility’s (OBR’s) Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB) suggest that borrowing in the current financial year (April 2020 to March 2021) could reach £372.2 billion, around seven times the amount borrowed in the financial year ending (FYE) 2020.

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 at the end of September 2020 to 103.5% of GDP, the highest debt ratio since FYE 1960.

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.

Our article Recent and upcoming changes to public sector finance statistics: September 2020 explains the larger coronavirus policies and how we are currently working with HM Treasury and HM Revenue and Customs (HMRC) to address the challenges of measuring the effects of the pandemic on tax receipts. Taken from this article, Table 1 lists the largest coronavirus support schemes by implementation status.

In September 2020, the public sector spent more money than it received in taxes and other income. Over this period, the public sector borrowed £36.1 billion, £28.4 billion more than it borrowed in September 2019. The substantial increases in borrowing in recent months reflect the emerging effects of government coronavirus (COVID-19) policies.

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

Table 2 summarises how each of the five sub-sectors (central government, local government, non-financial public corporations, public sector pensions and the Bank of England) contribute to our headline measure of borrowing, public sector net borrowing excluding public sector banks (PSNB ex).

The table compares PSNB ex and the larger of its components in September 2020 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 receipts

In September 2020, central government receipts are estimated to have fallen by 13.4% compared with September 2019 to £52.5 billion. Of this £52.5 billion, tax receipts were £37.7 billion, £6.0 billion less than in September 2019, with Value Added Tax (VAT) receipts falling considerably.

These figures are always subject to some uncertainty, as many taxes such as 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. There is a greater degree of uncertainty at present because the full impact of the coronavirus pandemic is unknown.

While provisional estimates of Income Tax receipts in September 2020 show some recovery, with a £0.1 billion growth on a year earlier, business rates and corporation tax receipts have fallen by £0.8 billion and £0.6 billion respectively This month we have updated our initial estimates for business rates to reflect provisional information about the impact of coronavirus relief schemes.

Central government expenditure

In September 2020, central government bodies spent £85.4 billion, an increase of 29.7% on September 2019.

Of this, £77.8 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 a combined £5.9 billion spent on the current job furlough schemes: Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS)
• paying social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay)
• paying interest on the government’s outstanding debt

The remaining £7.5 billion was spent on capital investment such as infrastructure.

Departmental expenditure on goods and services

Departmental expenditure on goods and services in September 2020 increased by £5.7 billion compared with September 2019, including a £4.7 billion increase in the purchase of goods and services and a £0.9 billion increase in expenditure on staff costs.

This increase in pay and procurement partially reflects expenditure by the Department of Health and Social Care (DHSC) devolved administrations and other departments to respond to the coronavirus pandemic.

Subsidies paid by central government

In September 2020, central government paid £8.8 billion in subsidies to businesses and households. These payments included £4.9 billion as a part of the Coronavirus Job Retention Scheme (CJRS) and £1.0 billion as part of the Self Employment Income Support Scheme (SEISS). These temporary schemes are designed to help employers pay wages and salaries to those employees who would otherwise be made redundant, and to support self-employed workers.

Social assistance benefits

Social assistance benefits cover a multitude of payments including Disability Living Allowance, Carers Allowance, sick leave, Winter Fuel Payments and Maternity Pay. September 2020 saw a £1.6 billion increase compared with September 2019, partially as a result of the extra demands on society from the coronavirus pandemic.

Interest payments on the government’s outstanding debt

Interest payments on the government’s outstanding debt in September 2020 were £4.9 billion, a £2.5 billion increase compared with September 2019. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged.

Local government and public corporations data

Both local government and public corporations data for September 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).

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-September 2020, the public sector borrowed £208.5 billion, £174.5 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 £59.8 billion to borrowing in the financial year-to-September 2020.

Estimates of CJRS payments on an accrued (or national accounts) basis for the period March to June 2020 are based on HM Revenue and Customs (HMRC) estimates, while those for July to September 2020 are based on Office for Budget Responsibility (OBR) projections. SEISS payments are currently recorded on a cash basis, reflecting HMRC coronavirus statistics.

Between 3 and 31 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.

Table 3 summarises how each of the five sub-sectors (central government, local government, non-financial public corporations, public sector pensions and the Bank of England) contribute to our headline measure of borrowing, public sector net borrowing excluding public sector banks (PSNB ex).

Table 3 compares PSNB ex and the larger of its components in the financial year-to-September 2020 with the equivalent measures in the same period a year earlier. Additionally, the table presents estimates of the borrowing of the public sector banks and the full public sector net borrowing measure.

Borrowing in the latest full financial year

This month, we publish the seventh estimate of borrowing for the full financial year ending (FYE) 2020. Since the first estimate published on 23 April 2020, we have revised borrowing upwards by £5.8 billion, from £48.7 billion to £54.5 billion. Under normal circumstances, this revision reflects the provisional nature of the data as initial data estimates are replaced by improved forecasts (and eventually outturn data). More notably, this revision reflects updated data being made available as the effects of the coronavirus pandemic on the public finances become clearer.

Borrowing had generally been falling since its peak in FYE 2010. However, borrowing in the latest full financial year (April 2019 to March 2020) was £15.7 billion more than in the previous financial year, largely because of the impact of the pandemic 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.

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

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

On 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. This policy may lower VAT cash receipts over this period, though the extent is currently unknown.

At the end of September 2020, the amount of money owed by the public sector to the private sector was approximately £2.1 trillion (or £2,059.7 billion), which equates to 103.5% of gross domestic product (GDP).

Gilts make up the largest component of debt. At the end of September 2020, there was £1,740.7 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 nominal 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 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 BoE, public sector net debt excluding public sector banks (PSND ex) at the end of September 2020 would reduce by £225.6 billion (or 11.4 percentage points of GDP) to £1,834.1 billion (or 92.1% of GDP).

Bank of England Asset Purchase Facility Fund

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

At the end of September 2020, the gilt holdings of the APF were £569.2 billion (at nominal value), an increase of £12.2 billion compared with a month earlier. Over the same period, the net gilt issuance by the DMO was £22.7 billion, which implies that gilt holdings by bodies other than the APF have grown by £10.5 billion since July 2020.

The estimated impact of the APF’s gilt holdings on PSND ex currently stands at £105.6 billion, the difference between the nominal value of its gilt holdings and the market value it paid at the time of purchase. The final debt impact of the APF depends on the disposal of these financial instruments at the end of the scheme.

Further, the APF holds £19.7 billion in corporate bonds, adding an equivalent amount to the level of public sector net debt.

Term Funding Scheme and Term Funding Scheme with additional incentives for small and medium-sized enterprises

In March 2020, the BoE announced the expansion of its Term Funding Scheme (TFS) with the introduction of the TFS with additional incentives for small and medium-sized enterprises (TFSME).

In September 2020, an additional £15.3 billion of loans were made under the TFSME scheme. However, because of repayments, the total stock of loans under the TFS umbrella only increased by £6.9 billion compared with last month, to £117.6 billion, adding an equivalent amount to the level of public sector net debt.

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 outturn.

The coronavirus (COVID-19) pandemic has had an 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 5 shows the revisions to the headline statistics presented in this bulletin compared with those presented in the previous bulletin (published on 25 September 2020).

Table 6 shows how each element of the public sector contributes to the revisions in borrowing compared with our previous publication (25 September 2020). The table presents revisions to both the financial year-to-August 2020 and to August 2020 alone.

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

This month we have reduced our previous estimate of borrowing in the financial year-to-August 2020 by £1.3 billion, largely because of an increase to the previous estimate of central government tax receipts and National Insurance contributions, partially offset by an increase in previous estimates of central government’s expenditure on goods and services.

Central government receipts

Previous estimates of central government tax receipts in the financial year-to-August 2020 have been increased by £1.7 billion compared with those published in our previous bulletin (published 25 September 2020). Though we have increased our previous estimates of Value Added Tax (VAT) receipts, Corporation Tax and Pay as You Earn (PAYE) Income Tax, notably we have reduced our previous estimate of business rates by £4.1 billion in the financial year-to-August 2020.

This month we have updated our business rates receipts in the financial year-to-September 2020 to reflect the Ministry of Housing, Communities and Local Government's (MHCLG) initial estimate of the impact of the coronavirus pandemic and extended reliefs. These numbers are provisional and may be revised when further information becomes available.

Revisions to tax estimates reflect the uncertainty of the impact of the coronavirus pandemic on future cash tax receipts. Further revisions are likely. We have published an article explaining the Recent and upcoming changes to public sector finance statistics: September 2020, which we update each month to reflect the latest information.

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

This process means many receipts are provisional for the latest period or periods as they depend on both actual cash payments and on projections of future tax receipts which are “accrued” (or time-adjusted) back to the current month or months.

Central government expenditure

The cost of the day-to-day running of central government (or current expenditure) in the financial year-to-August 2020 has increased by £1.7 billion compared with that published in our previous bulletin (published 25 September 2020), largely because of updated expenditure on goods and services.

Last month, we presented a large negative revision to central government procurement and explained that we expected this revision to unwind across the whole financial year-to-August 2020 as further information becomes available on the timing of payments. This bulletin therefore presents a large upward revision (£6.9 billion) to procurement in July with smaller offsetting downward revisions averaging around £1.4 billion in April, May, June and August 2020.

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

This month we updated our previous estimates of EU Emissions Trading Scheme data. Recorded as a tax on production, these data are received annually and have increased our previous estimates by £0.1 billion a month across the financial year ending (FYE) 2020. Further we have increased our estimates in the financial year-to-September by corresponding amounts.

Public sector net borrowing (including public sector banks)

Estimates of the net borrowing of public sector banks are derived from the profit and loss account of these organisations, supplied to us by the Bank of England twice annually.

This month we have received a profit and loss account covering the period October to December 2019 for the first time with accompanying revisions back to FYE 2017. These data have enabled us to improve previous estimates of borrowing and to inform our current estimates beyond January 2020.

Public sector net cash requirement (excluding public sector banks)

This month we have increased our previously published estimate of net cash requirement in financial year-to-August 2020 by £3.3 billion, largely because of new information supplied by the Ministry of Housing, Communities and Local Government (MHCLG).

Public sector net debt (excluding public sector banks)

This month we have increased our previously published estimate of debt at the end of August 2020 by £3.5 billion to £2,027.4 billion, largely because of new information supplied by the MHCLG.

This month we have updated our GDP estimates to include the latest published estimates Quarter 2 (Apr to June) 2020 based on the published GDP quarterly national accounts, UK: April to June 2020, which include revisions over a long period because of the annual update of the UK National Accounts.
 

Each September, we take the opportunity to introduce reclassification, methodology and larger (often annual) data updates to public sector finance statistics.

In September 2020, we introduced the following changes to our public sector finances presentation:

• the reclassification of Pool Re to the central government sub-sector
• an improvement to the accrued recording of Corporation Tax relating to company tax credits
• data updates to our funded public sector pensions, student loans and capital consumption data

Details on these and other changes introduced in September 2020 can be found in our article Recent and upcoming changes to public sector finance statistics: August 2020 , published on 25 September 2020

Alongside this bulletin, Impact of Pool Re and other classification, methodology and data changes introduced in September 2020: Appendix J presents the effect of these changes on our latest estimates of public sector current budget, net investment, net borrowing and net debt.

This month we have expanded this presentation to present the impact of the September changes on net financial liabilities excluding public sector banks for the first time.

The public sector

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

Public sector current budget deficit

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

Public sector net investment

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

Public sector net borrowing

Public sector net borrowing excluding public sector banks (PSNB ex) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment (capital spending less capital receipts)). 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). Table 7 compares these expectations with our latest headline public sector finance fiscal aggregates.

Gross domestic product (GDP)

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

September 2020 requires data across five quarters of GDP. Of these, two are based on Office for National Statistics (ONS) published data and three are based on official estimates published by the OBR:

• data up to and including Quarter 2 (Apr to June) 2020 are based on the published GDP quarterly national accounts, UK: April to June 2020
• estimates of GDP for the subsequent three calendar quarters (July 2020 to March 2021) are based on expectations published in the OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB)

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

Departure from the EU

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

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

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

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

National Statistics status for public sector finances

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

Local government

Local government data for the financial year ending (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 the Office for Budget Responsibility (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 upwards 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 forecasts of future cash receipts, produced by the Office for Budget Responsibility (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 and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB)

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 September 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 September are based on forecast October cash receipts.

The amount of cash received for PAYE Income Tax in September 2020 was lower than usual, with much of that weakness likely attributable to lower earnings and employment and non-payment of liabilities. September 2020 receipts recorded on an accrued basis are estimated based on the OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB).

We currently assume that most non-paid tax due between April and September 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 September 2020, we have used additional cash receipts information for May to September 2020 to inform a judgement on the repayment of arrears (or debt) in June to September 2020. We have also included an upward adjustment for September 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 September depend on forecast cash receipts for October, November and December. 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 impacting accrued receipts. Receipts forecasts are based on the OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB), adjusted to account for the impacts of the deferral scheme. These profiles do not yet take into account the announcement on 24 September 2020 that enables companies to opt to spread repayments of deferred VAT across the financial year ending (FYE) 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 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 Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB).

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 Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB) implicitly includes an element of non-payment through calibration to observed outturn receipts.

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 Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB).

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

Alcohol

As with the taxes outlined earlier, estimates of future months’ alcohol cash receipts are currently based on the OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB).

In estimating alcohol receipts on an accrued (or national accounts) basis in the period February to September 2020, we have used additional cash receipts information up to and including September 2020 to inform an initial judgement on the repayment of arrears (or debt).

National Non-domestic Rates

This month we have updated our estimates of National Non-domestic Rates (or business rates) in the current financial year to 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 Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB) may be overestimated. Such taxes will be reviewed over the coming months when more information becomes available.