UK government debt and deficit: September 2017

• In March 2017, UK general government gross debt was 86.7% of gross domestic product (GDP), 26.7 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 end of the financial year ending March 2010, when it was 69.9% of GDP.

• In the financial year ending March 2017, general government deficit (or net borrowing) was 2.4% of GDP, 0.6 percentage points below the reference value of 3.0% set out in the Protocol on the Excessive Deficit Procedure.

• This is the first time the government deficit has been below the 3.0% Maastricht reference value since the financial year ending March 2008, when it was 2.9% of GDP.

This section presents information on aspects of data or methodology, introduced since the last publication in October 2017.

Multilateral development banks

In the Government Deficit and Debt Quarter 1 (January to March) 2015 bulletin published in July 2015, we included changes as a result of international guidance on multilateral development banks. At the time we changed the treatment of the UK government subscriptions to the International Development Agency (IDA), which is where the largest subscriptions are. This quarter we have expanded this work to encompass other multilateral developments banks, such as the European Bank for Reconstruction and Development (EBRD) and the African Development Banks (AfDB). This improvement has resulted in increases in general government net borrowing of around £200 million in each financial year from the financial year ending March 2008, but has had no impact on government debt.

Immigration Skills Charge and Apprenticeship Levy

This quarter, we introduced the Immigration Skills Charge. This charge affects employers across the public and private sectors and has been classified by Office for National Statistics (ONS) as a tax on production collected by central government.

We have also reviewed our accrued methodology for the Apprenticeship Levy receipts. In the absence of official guidance, this income was recorded on a cash basis (cash equals accruals). In the light of an agreed accruals methodology, we have now improved the recording of the Apprenticeship Levy in the estimation of borrowing, whereby accrued receipts will lag cash receipts by one month in a similar approach taken with other accrued tax receipt recording.

Data improvements

We regularly review our data sources to ensure they are the most up-to-date available. We have recently been working to improve our data for the Financial Services Compensation Scheme (FSCS) and interest receivable by central government. These improvements have been introduced in this bulletin.

What counties 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, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.

The background to this release

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 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 UK Public sector finances: November 2017 statistical bulletin, published on 21 December 2017.

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 deficit and debt 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 24 January 2018 in context with the other 27 EU member states.

According to the latest figures published in October 2017, there were four member states that had a deficit in 2016 equal or higher than 3% of gross domestic product (GDP) reference value, while 16 member states (including the UK) had gross debt as at the end of 2016 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 December 2017, the UK provided to Eurostat revised estimates for the financial year ending March 2017 and revised estimates for the calendar year 2016. Estimates for the financial year ending March 2017 were first provided in June 2017 and estimates for the calendar year 2016 were first provided in March 2017.

This bulletin reports that, in 2016 and in the financial year ending March 2017, the UK government deficit as a percentage of GDP is below the reference value, while debt at the end of 2016 and in the financial year ending March 2017 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 December 2017 are included in this release.

At the end of the financial year ending March 2017, UK government gross debt was £1,720.0 billion, equivalent to 86.7% of gross domestic product (GDP) (Table 1). This represents an increase of £68.1 billion since the end of the previous financial year, although debt as a percentage of GDP fell by 0.1 percentage points to 86.7%, the first decrease since the financial year ending March 2002 (Figure 1).

General government gross debt first exceeded the 60.0% Maastricht reference value at the end of the financial year ending March 2010, when it was 69.9% of GDP or £1,076.6 billion.

At the end of the calendar year 2016, UK government gross debt was £1,731.4 billion, equivalent to 88.2% of GDP. This represents an increase of £65.4 billion since the end of the previous calendar year, although, debt as a percentage of GDP remained at 88.2%.

The higher gross debt value at the end of the calendar year 2016 compared with the end of the financial year ending March 2017 largely reflects the drop in stock of Treasury bills in issuance over the first quarter (Jan to Mar) of 2017 of around £27 billion. This drop in the liabilities from Treasury bills is partly offset by increases in the liabilities on gilts, loans and deposits.

In the financial year ending March 2017, the UK government deficit was £46.9 billion, equivalent to 2.4% of gross domestic product (GDP), a decrease of £29.0 billion compared with the financial year ending March 2016 (Table 2).

This represents the lowest annual deficit (as a percentage of GDP) since the financial year ending March 2003, when it was also 2.4% of GDP, and the first time the UK government deficit has been below 3% of GDP since the financial year ending March 2008, when it was 2.9% of GDP (Figure 2).

In the calendar year 2016, the UK government deficit was £58.0 billion (3.0% of GDP), a decrease of £22.6 billion compared with the calendar year 2015.

This is the third time that deficit and debt figures for the financial year ending March 2017 have been reported in this statistical bulletin series; it is the fourth time that deficit and debt figures for the calendar year 2016 have been reported.

Since the last publication of this bulletin in October 2017, the deficit in the financial year ending in March 2017 has been revised upwards by £1.4 billion and the latest estimate of debt at the end of the financial year ending March 2017 has remained largely unchanged at £1,720.0 billion.

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

In this quarter (Quarter 3 2017 or July to Sept 2017) we introduced changes to the methodology that led to revisions to government deficit data. Such changes are discussed in section 2 of this release.

Most of the data revisions relate to revised departmental (and other government bodies) source data being received for the financial year ending March 2017 (April 2016 to March 2017). However, revisions are not limited to this period; there have been some revisions in earlier years, which are discussed in section 2 of this release.

Table M8R presents the revisions to our main aggregates since the last publication of the Government Deficit and Debt Return as reported to the European Commission in October 2017. These revisions are consistent with revisions incorporated within the public sector finances statistical bulletin.

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.

The public sector finances Quality and Methodology Information 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

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

To meet UK Statistics Authority requirements we published an article, Quality assurance of administrative data used in the UK public sector finances. This report provides an assessment of the administrative data sources used in the compilation of the public sector finance statistics, in accordance with the UK Statistics Authority’s Administrative Data Quality Assurance Toolkit.

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.