UK government debt and deficit: March 2018

• General government gross debt was £1,763.8 billion at the end of the financial year ending March 2018, equivalent to 85.8% of gross domestic product (GDP), 25.8 percentage points above the reference value of 60% set out in the Protocol on the Excessive Deficit Procedure.

• General government gross debt first exceeded the 60% Maastricht reference value at the financial year ending March 2010, when it was 69.6% of GDP.

• General government deficit (or net borrowing) was £40.7 billion in the financial year ending March 2018, a decrease of £6.5 billion compared with the financial year ending March 2017; this is equivalent to 2.0% of GDP, 1.0 percentage points below the reference value of 3.0 % set out in the Protocol on the Excessive Deficit Procedure.

• This is the second consecutive financial year in which government deficit has been below the 3.0% Maastricht reference value.  

This section presents information on aspects of data or methodology, introduced since the last publication in April 2018.

Blue Book 2018

As part of the UK National Accounts annual publication (Blue Book 2018), a number of changes already implemented in the public sector finances were introduced in the national accounts. These changes include the reclassification of the devolved housing associations to the public sector; the reclassification of Rail for London from the local government sector to the public corporation’s sector; the corporation tax methodological improvements and the changes to the funded public sector employment-related pension schemes.

Though these methodological changes had already been introduced into the public sector finances, improved data sources and further quality assurance during the production of blue book have resulted in revisions to government deficit back to 1997.

Alignment between public sector finances and national accounts

On 29 June 2018 we published an article explaining the differences between public sector net borrowing estimates published in the public sector finances and those in the national accounts. The article forms a part of a regular series of articles published annually alongside the Blue Book publication.

Improvements to financial account data: equity assets

We have reviewed equity assets held by central government bodies and identified a number of bodies that hold shares in investment funds. These include the Nuclear Liabilities Fund (NLF), the National Endowment for Science Technology and the Arts (Nesta) and BIS (Postal Services Act 2011) Company Limited. This work has enabled us to improve the quality of our data by correctly recording the stocks and flows that these organisations hold in investment funds, such as mutual funds and private equity bodies.

In addition to these changes, we have also reviewed the data sources for equity assets. Data for the following bodies have been improved: European Investment Bank (EIB), NLF, Nesta, BIS (Postal Services Act 2011) Company Limited, and Department for Business, Energy and Industrial Strategy (BEIS) itself. These improvements have led to revisions in central government equity assets from 1997, but had no impact on government debt or deficit.

What countries are in the EU?

The European Union (EU) is an economic and political union of 28 countries. It operates an internal (or single) market which allows free movement of goods, capital, services and people between member states.

The EU countries are:

Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.

The background to this release

The EU government debt and deficit statistical bulletin is published quarterly in January, April, July and October each year, to coincide with when the UK and other 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 two 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%

For the UK, financial year (April to March) figures are used by the European Commission when assessing against the Protocol on the Excessive Deficit Procedure.

What are the most important terms I need to know?

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 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.

Are our figures adjusted for inflation?

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. For comparisons over time, the figures as a percentage of GDP (also measured in current prices) are used to provide comparable time series.

Is this release consistent with UK public sector finances?

The general government debt and deficit figures published in this bulletin (for the time period 1997 onwards), are fully consistent with those published in the Public sector finances, UK: May 2018 statistical bulletin, published on 21 June 2018.

What are the differences between this release and the figures published in the public sector finances bulletin?

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

• 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, including public non-financial corporations and Bank of England.

• 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.

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

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.

Both the debt and deficit figures in this statistical bulletin will be published by Eurostat on 20 July 2018 in context with the other 27 EU member states.

According to the latest figures published in April 2018, there were two member states that had a deficit in 2017 equal to or higher than 3% of gross domestic product (GDP) reference value, while 15 member states (including the UK) had gross debt as at the end of 2017 that exceeded the 60% of GDP reference value.

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 EU, is assessed against the deficit and debt on a UK financial year basis (that is, April to March). In June 2018, the UK provided to Eurostat first estimates for the financial year ending March 2018, and revised estimates for the calendar year 2017.

This bulletin reports that, in 2017 and in the financial year ending March 2018, the UK government deficit as a percentage of GDP is below the reference value, while debt at the end of 2017 and at the end of the financial year ending March 2018 still exceeds 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 June 2018 are included in this release.

At the end of the financial year ending March 2018, UK general government gross debt was £1,763.8 billion, equivalent to 85.8% of gross domestic product (GDP) (Table 1 and Figure 1). This represents an increase of £43.8 billion since the end of the financial year ending March 2017, although debt as a percentage of GDP fell by 0.7 percentage points from 86.5% to 85.8%. This fall in the ratio of debt to GDP implies that GDP is currently growing at a greater rate than government debt.

General government gross debt first exceeded the 60.0% Maastricht reference value at the financial year ending March 2010, when it was 69.6% of GDP (or £1,076.6 billion) and continues to remain above this reference value.

At the end of the calendar year 2017, UK government gross debt was £1,786.1 billion (87.5% of GDP). This represents an increase of £54.7 billion since the end of the calendar year 2016.

The higher gross debt value at the end of the calendar year 2017 compared to at the end of the financial year ending March 2018 mainly reflects the drop in the stock of Treasury bills in issuance over the first quarter of 2018 of around £15 billion, coupled with a reduction in liabilities on gilts and deposits. This drop is partly offset by an increase in the liabilities on loans. See the Government deficit and debt return dataset.

In the financial year ending March 2018, the UK general government deficit was £40.7 billion, equivalent to 2.0% of gross domestic product (GDP) (Table 2 and Figure 2). This represents a decrease of £6.5 billion compared with the financial year ending March 2017.

The annual deficit, as a percentage of GDP, for the financial year ending March 2018, was the lowest since the financial year ending March 2002 when it was 0.4%.

In the calendar year 2017, the UK government deficit was £36.2 billion (1.8% of GDP), a decrease of £21.8 billion compared with the calendar year 2016.

This is the first time that debt and deficit figures for the financial year ending March 2018 have been reported in this statistical bulletin series; it is the second time that debt and deficit figures for the full calendar year ending 2017 have been reported.

Since the last publication of this bulletin in April 2018, the deficit for 2017 has been revised downwards by £3.2 billion and the latest estimate of debt at the end of 2017 has been revised downwards by £0.2 billion.

Revisions can be the result of both updated data sources and methodology changes.

Most of the data revisions relate to revised departmental (and other government bodies) source data being received for the financial year ending March 2018 (April 2017 to March 2018) and revised outturn data in general from the financial year ending March 2017 but in some cases from the financial year ending 2015.

In July 2018, ONS release the UK National Accounts annual publication (Blue Book 2018). As is usual, the process of compiling this leads to more historical data revisions than in other quarters as a result of the quality assurance work done by national accounts in preparation for the annual publication.

Table M8R presents the revisions to our main aggregates since the last publication of the government debt and deficit return, as reported to the European Commission in April 2018. These revisions are consistent with revisions incorporated within the Public sector finances statistical bulletin.

The Public sector finances revisions 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.

The public sector finances Quality and Methodology Information (QMI) report contains important information on:

• the strengths and limitations of the data and how it compares with related data
• uses and users of the data
• how the output was created
• the quality of the output including the accuracy of the data

The public sector finances 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 inter-related. Additionally, it details the data sources used to compile the monthly estimates of the fiscal position.

Future developments in public sector finance statistics

On 17 July 2018, we published a forward-looking article Looking ahead: developments in public sector finance statistics, providing users with an overview of those areas where existing methodologies are, or will be, under review. The aim is to give users early sight of those areas where the fiscal statistics might be significantly impacted by methodological or classification changes during the coming 24 months. The article is designed to help government in its fiscal planning and support the Office for Budget Responsibility (OBR) in its role in producing fiscal forecasts. For this reason, the publication date has been set to coincide with the OBR’s publication of their latest Fiscal Sustainability Report. The article is our first paper of this type but we plan to update it regularly.

The article discusses:

• the treatment of student loans
• funded and unfunded public sector pension schemes
• leases, in light of new business accounting guidance (IFRS16)
• depreciation, in light of the review of Perpetual Inventory Model (PIM)
• asset stocks, in light of the review of public sector balance sheet

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.

Supporting documentation

Documentation supporting this publication is available in appendices to the bulletin.

Summary, reconciliation, and revisions information on UK government deficit and debt figures by calendar and financial year.

European System of Accounts (ESA) 2010 Table 2

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

ESA Table 25

Quarterly non-financial accounts of general government
ESA Table 25 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

ESA Table 27

Quarterly financial accounts of general government
Complete set of quarterly financial accounts of the general government sector and its sub-sectors compiled according to ESA 2010.

ESA Table 28

Quarterly government debt (Maastricht debt) for general government
Government debt on a quarterly basis, for general government and its sub-sectors.