UK government debt and deficit: September 2016

General government gross debt was £1,652.0 billion at the end of March 2016, equivalent to 87.6% of gross domestic product (GDP); an increase of £47.9 billion on March 2015.

General government deficit (or net borrowing) decreased by £19.1 billion to £76.3 billion (equivalent to 4.0% GDP) in the financial ending March 2016, compared with the previous financial year.

This release is fully consistent with the latest data transmission on UK government deficit (or net borrowing) and debt that the UK and other European Union (EU) member states are required to report quarterly to the European Commission.

The figures for 1997 onwards in this statistical bulletin are fully consistent with the data published in the Public Sector Finances statistical bulletin of 21 December 2016.

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

Article 126 of the Treaty on the Functioning of the European Union (EU) obliges member states to avoid excessive budgetary deficits. The Protocol on the Excessive Deficit Procedure, annexed to the Maastricht Treaty, defines 2 criteria and reference values with which member states’ governments should comply. These are:

• a deficit (net borrowing) to gross domestic product (GDP) ratio of 3%

• a debt to GDP ratio of 60%

Deficit (or net borrowing) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment). A positive value indicates borrowing while a negative value indicates a surplus.

Debt represents the amount of money the public sector owes to UK private sector organisations and overseas institutions, largely as a result of government financial liabilities on the bonds (gilts) and Treasury bills it has issued.

While deficit represents the difference between income and spending over a period of time, debt represents the total amount of money owed at a point in time. This debt has been built up by successive government administrations over many years. When the government borrows (that is, runs a deficit), this adds to the debt total. So reducing the deficit is not the same as reducing the debt.

The monetary values quoted are in current prices, that is, they represent the price of debt and deficit in the year to which they relate without any adjustments for inflation. Thus for comparisons over time the figures as a percentage of GDP (also measured in current prices) are used to provide a comparable time series.

The source data, and therefore the debt and deficit figures published in this bulletin (for the time period 1997 onwards), are equivalent to those published in the UK Public Sector Finances, November 2016 statistical bulletin, published on 21 December 2016.

There are 2 main differences between the headline debt and deficit measures published in the public sector finances and the deficit and debt figures published in this bulletin:

1. Coverage

   This bulletin includes only the debt and deficit of central and local government bodies, whereas the public sector finances’ measures also include the debt and deficit of other public sector bodies (public non-financial corporations and Bank of England).

2. The treatment of liquid assets in debt

   This bulletin reports gross debt, whereas the public sector finances’ focus is net debt. Gross debt represents only the financial liabilities (debt securities, loans and deposits) of central and local government, while net debt deducts any liquid assets (official reserve assets and other cash or cash-like assets) from these financial liabilities.

Eurostat analyses all data provided by member states and publishes a press release, which places the UK figures in a European context and provides commentary on any issues specific to member states.

Table 1 provides a summary of the headline measures of both general government deficit and gross debt.

General government deficit

In the financial year ending March 2016, the UK government deficit was £76.3 billion, equivalent to 4.0% of GDP; a decrease of £19.1 billion compared with the financial year ending March 2015. This represents the lowest annual deficit (as a percentage of GDP) since the financial year ending March 2008 when it was 3.0% (equivalent to £45.8 billion). However, the deficit remains above the Maastricht reference value of 3.0%.

In the calendar year 2015, the UK government deficit was £81.7 billion, equivalent to 4.4% of GDP; a decrease of £23.4 billion compared with 2014. This represents the lowest annual deficit (as a percentage of GDP) since the calendar year 2007 when it was 2.9% of GDP (£44.5 billion).

The long-term general government deficit as a percentage of GDP is illustrated in Figure 1.

General government gross debt

At the end of March 2016, UK government gross debt was £1,652.0 billion, equivalent to 87.6% of GDP, an increase of £47.9 billion on March 2015. This is the 14th consecutive annual increase in debt as a proportion of GDP. General government gross debt first exceeded the 60% Maastricht reference value at the end of the financial year ending March 2010 when it was 70.3% of GDP or £1,076.6 billion.

At the end of the calendar year 2015, UK government gross debt was £1,666.0 billion, equivalent to 89.0% of GDP; an increase of £61.2 billion on December 2014.

The long-term general government gross debt as a percentage of GDP is illustrated in Figure 2.

This section summarises the recent events and methodological changes affecting UK general government deficit and/or UK general government gross debt.

Classification decisions

Each quarter we publish a forward workplan outlining the classification assessments we expect to undertake over the coming 12 months. To supplement this, each month a classifications update is published, which announces classification decisions made, and includes expected implementation points (for different statistics) where possible. Classification decisions are reflected in the public sector finances at the first available opportunity and, where necessary outlined in this section of the statistical bulletin.

Bank of England Asset Purchase Facility Fund

The Chancellor announced on 9 November 2012 that it had been agreed with the Bank of England to transfer to the Exchequer the excess cash in the Asset Purchase Facility Fund. In line with European guidance (from Eurostat) the amount of cash that reduces deficit is limited by the entrepreneurial income earned by the Bank of England in the previous year.

In the financial year ending March 2016, there was a £8.5 billion transfer from the Asset Purchase Facility to HM Treasury. The Bank of England entrepreneurial income for the financial year ending March 2016 was calculated as £12.5 billion; as the amount of dividend transfers made did not exceed the entrepreneurial income, the impact of these transfers was to reduce deficit by £8.5 billion. The entrepreneurial income for the financial year ending March 2016 is £11.9 billion, and therefore this will be the limit for transfers that affect the deficit in the financial year ending March 2017.

The treatment of the recently announced Monetary Policy Committee economic package in government statistics

On 3 August 2016, the Monetary Policy Committee (MPC) voted to introduce a package of measures to support the economy. This package comprised:

• a 25 basis point cut in Bank Rate to 0.25%

• a new Term Funding Scheme to reinforce the pass-through of the cut in Bank Rate

• the purchase of up to £10 billion of UK corporate bonds

• an expansion of the asset purchase scheme for UK government bonds of £60 billion

The £60 billion expansion of the APF will take the total stock of government bond purchases to £435 billion. On top of this, the APF may purchase up to £10 billion of corporate bonds.

The Term Funding Scheme (TFS) is operated by the Bank of England through the Asset Purchase Facility Fund. It is designed to reinforce the transmission of Bank Rate cuts to those interest rates actually faced by households and businesses by providing term funding to banks at rates close to the Bank Rate.

We have classified the Bank of England’s TFS in accordance with international rules set out in the European System of Accounts 2010 (ESA 2010) and accompanying statistical manuals. Although the TFS has a significant impact on public sector debt, the debt is recorded on the Bank of England balance sheet and as such there is no direct impact on general government debt or deficit as a result of TFS.

Share sales in the financial year ending March 2016

A number of share sales have occurred in the financial year ending March 2016. These are as follows:

• the sale of the government’s 40% stake in the cross-Channel train operator Eurostar raised £757 million in May 2015

• the sale of half of the government’s retained shareholding in Royal Mail (a 15% stake) raised £750 million in June 2015

• the sale of 5.4% of the government’s stake in the Royal Bank of Scotland raised £2.1 billion in August 2015

• the ongoing sale of shares in Lloyds Banking group (reclassified to private sector in March 2014) has raised a total of £7.1 billion throughout the financial year ending in March 2016

Sale of loans by UKAR

In December 2015, UK Asset Resolution (UKAR) sold approximately £13 billion of loan assets relating to mortgages previously held by Northern Rock.

Under the Excessive Deficit Procedure all European Union (EU) member states report their latest detailed deficit and debt information to the European Commission twice a year. Supporting statistical information, including deficit and debt values, are reported quarterly. Both the biannual and quarterly returns are published by Eurostat (the European statistical agency).

Both the debt and deficit figures in this statistical bulletin will be published by Eurostat on 23 January 2017.

The tables in this bulletin present the UK government debt and deficit position at the end of both the financial and calendar years.

The UK, uniquely within the European Union, is assessed against the deficit and debt on a UK financial year basis (that is, April to March).

In December 2016, the UK provided to Eurostat revised estimates for the financial year April 2015 to March 2016, and revised estimates for the calendar year 2015. Estimates for the financial year ending in March 2016 were first provided in June 2016, while estimates for the calendar year 2015 were first provided in March 2016.

The UK figures may be compared with those of other EU member states on the Government Finance Statistics section of the Eurostat website.

The latest UK government deficit and debt figures exceed the reference values set out in the Protocol on the Excessive Deficit Procedure.

According to the latest deficit and debt figures published in October 2016, there were 6 member states (including the UK) that had a deficit in 2015 which exceeded the 3% of GDP reference value and 17 member states (including the UK) had gross debt as at the end of 2015 which exceeded the 60% of GDP reference value.

While the main statistics provided to Eurostat are those of general government consolidated gross debt and deficit, supplementary government finance statistics are also supplied by member states. A full set of government finance tables provided by the UK to Eurostat in December 2016 are included in this release.

This section aims to summarise the changes made to the UK general government statistics between the latest excessive deficit procedure (EDP) transmission on 21 December 2016 and the previous transmission made on 30 September 2016.

The Public Sector Finances Revision Policy provides information of when users of the statistics published in the Public Sector Finances and UK Government Debt and Deficit for Eurostat statistical bulletins should expect to see methodological and data-related revisions. More detail of the methodology and sources employed can be found in the Public Sector Finances Methodological Guide.

This is the third time that deficit and debt figures for the financial year ending March 2016 have been reported in this statistical bulletin series; it is the fourth time that deficit and debt figures for the calendar year 2015 have been reported.

Since the last publication of this bulletin in October 2016, the deficit in the financial year ending in March 2016 has been revised downwards by £0.3 billion (0.4%) and the latest estimate of debt at the end of the financial year ending March 2016 has remained largely unchanged at £1,652 billion.

The revisions to deficit for the financial year ending March 2016 are largely a result of outturn data replacing earlier estimates. The deficit in the financial year ending March 2015 has been revised up by £0.9 billion, almost entirely due to updated data for expenditure on goods and services by local government bodies in Scotland.

Figures for debt as a percentage of GDP have been revised prior to 1997 to take on the latest revisions to GDP published by ONS, alongside the 2016 Blue Book in July 2016. These historic data had not yet been taken on in the October 2016 publication.

Table M8R presents the revisions to main aggregates since the last publication of the EU government debt and deficit as reported to the European Commission in October 2016. Revisions to the data are consistent with revisions incorporated within the Public Sector Finances statistical bulletin.

Main methodological changes and recent events that affect data movements are described under “Recent events and methodological changes”.

There are 9 tables included as part of this bulletin. Most tables extend back to the financial year ending March 1993 in financial years and 1992 in calendar years. However, Table M7 extends back to 1995 and Tables M5, M6 and M9 only cover more recent periods.

All values in the tables are at current prices and are not seasonally adjusted. The debt figures are at nominal value. That is, the debt is valued at the face value of the debt, which is what the government will be liable to pay, and not the market value of the debt.

Table M1 shows the general government deficit and debt (in £ million and as a percentage of GDP).

Table M2 shows the general government debt by financial instrument (in £ million).

Table M3 shows transactions (or changes) in general government debt by financial instrument (in £ million).

Table M4 shows how the deficit can be reconciled with the changes in gross debt (in £ million).

Table M5 shows how the unconsolidated financial liabilities of central government and local government are consolidated to arrive at general government consolidated gross debt (in £ million).

Table M6 shows how the unconsolidated transactions (or changes) in financial liabilities of central government and local government are consolidated to arrive at consolidated transactions in general government gross debt (in £ million).

Table M7 shows how general government net borrowing (or deficit) is consistent with the general government net borrowing reported in the Public Sector Finances, November 2016 statistical bulletin published on 21 December 2016 (in £ million and as a percentage of GDP). The implementation of ESA 2010 in September 2014 has resulted in both outputs having consistent net borrowing figures from the financial year ending March 1998 onwards.

Table M8R shows revisions in deficit and debt between the figures published in this bulletin and those published in the last bulletin in October 2016 (in £ million and as a percentage of GDP).

Table M9 relates to government activities undertaken to support financial institutions during the financial crisis. It does not include wider economic stimulus packages. The table is presented in 2 parts.

• Part 1 shows the impact on government deficit from both the expenditure undertaken by government and the revenue received as part of these support measures.

• Part 2 shows the impact on the government balance sheet from the support measures. Part 2 also includes estimates of the contingent liabilities that government is exposed to through the activities undertaken to support financial institutions. All figures are in £ million. Following guidance from Eurostat, there has been a slight change to the presentation of figures in this table, and the assets and liabilities of defeasance structures that do not impact government debt are no longer included in the balance sheet information.

Generally, the data expressed in these tables extend back to the financial year ending March 1993 and calendar year 1992. However, Table M7 extends back to 1995, while Tables M5, M6 and M9 only cover more recent periods.

All values in the tables are at current prices and are not seasonally adjusted. The debt figures are at nominal value. That is, the debt is valued at the face value of the debt, which is what the government will be liable to pay, and not the market value of the debt.

The tables in this release are copies of the data supplied to Eurostat in December 2016.

Eurostat convention for recording missing values uses “M” when something is not applicable or the requested data does not exist, and “L” when the requested data is not available or the data exists but has not been collected or recorded.

All tables cover UK general government, that is UK central government and local government. The ESA tables 2, 25, 27, 28 are published 4 times a year (in January, April, July and October).

All table valuations are in current prices and reported values are in £ millions.

European System of Accounts (ESA) Table 2 Main aggregates of general government

ESA Table 2 is a complete set of annual (calendar years) non-financial accounts for the time series 1990 to 2015 of the general government sector, compiled according to ESA 2010.

Table 2 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

The table uses ESA 2010 codes to identify the different transactions with “OTE” representing the total general government expenditure and “OTR” representing the total general government revenue.

The table also shows the general government net borrowing (B.9), which is the difference between total revenue and total expenditure. The data is an annual presentation of the quarterly general government data in ESA Table 25.

European System of Accounts (ESA) Table 25 Quarterly non-financial accounts of general government

ESA Table 25 is a complete set of quarterly non-financial accounts for the time series Quarter 1 (Jan to Mar) 1987 to Quarter 3 (July to Sept) 2016 of the general government sector, compiled according to ESA 2010.

Table 25 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

This table shows the general government net borrowing (B.9), which is the difference between total revenue and total expenditure. The data is a quarterly presentation of the annual general government data in ESA Table 2.

European System of Accounts (ESA) Table 27 Quarterly financial accounts of general government

ESA table 27, also referred to as the quarterly financial accounts of general government (or QFAGG) is a complete set of quarterly financial accounts for the time series Quarter 1 1987 to Quarter 3 2016 of the general government sector and its sub-sectors, compiled according to ESA 2010.

The table deals with both financial transactions and the financial balance sheets.

Data are consolidated within each sub-sector and are available both consolidated and unconsolidated at the general government level.

European System of Accounts (ESA) Table 28 Quarterly government debt (Maastricht debt) for general government

ESA Table 28 summarises government debt on a quarterly basis for the time series Quarter 1 2000 to Quarter 3 2016, for general government and its sub-sectors, compiled according to ESA 2010.

The table provides a breakdown of all debt instruments that are relevant in the excessive deficit procedure (EDP) reporting of “Maastricht Debt”. These instruments are categorised under ESA 2010 as F.2 (cash and deposits), F.33 (securities other than shares) and F.4 (loans).

Data are consolidated within each sub-sector and at the general government level; that is, any debt liabilities of government which are held as assets by another part of government are removed.

The main terms used in this bulletin are:

• net borrowing – also known as deficit – measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment); a positive value indicates borrowing while a negative value indicates a surplus

• gross debt – is a measure of how much the government owes at a point in time

• gross domestic product (GDP) – a measure of the total economic activity in a country or region, therefore a country’s gross debt, represented as a proportion of their GDP, can be thought of as a measurement of that country’s ability to pay back its debt

• Bank of England asset purchase facility fund – an arm of the Bank of England able to purchase financial assets including government securities (gilts), the APF has earned interest which is periodically transferred back to central government

• Maastricht deficit – general government net borrowing as defined within the Maastricht Treaty and Stability and Growth Pact (and as supplied to Eurostat)

• Maastricht debt – general government gross debt as defined within the Maastricht Treaty and Stability and Growth Pact (and as supplied to Eurostat)

• public sector net borrowing (PSNB ex) – includes central government, local government, public corporations and Bank of England but excludes public sector banks

• public sector net debt (PSND ex) – includes central government, local government, public sector corporations and Bank of England but excludes public sector banks