Most methodological changes to the public sector finance statistics are prompted by the need for statistics to keep pace with the evolving economy. These changes can alter perceptions of the government's fiscal exposure, as measured by the fiscal aggregates such as public sector net borrowing (PSNB) or public sector net debt (PSND).
This article increases transparency around the methodology work, including classification reviews, that is currently underway or planned within the next 18 months. We intend to resume the publication of a separate longer-term work plan, which was suspended during the coronavirus (COVID-19) pandemic, later in 2021.Nôl i'r tabl cynnwys
Our focus will remain on reviewing and implementing new policies and support programmes provided by the UK government in response to the economic consequences of the coronavirus (COVID-19) pandemic. Nonetheless, we have made significant progress in some of the other areas listed in the 2019 Looking ahead article. This section describes the changes we are expecting to implement within the next 18 months. Our longer-term plans will be announced later this year.
The Budget 2020 provided for a review of the fiscal framework to ensure it remained "appropriate for the current macroeconomic environment". While the coronavirus pandemic has had major implications for the review, we are resuming work on improving the quality of the balance sheet data, particularly in areas beyond those included in public sector net debt (PSND). We published a methodology article devoted to this work on 22 June 2021.
National non-domestic rates
In the national accounts and fiscal statistics, tax receipts are generally recorded on an accruals basis rather than on a cash basis; we record government revenue at the point when the tax liability arises, rather than when the tax is actually paid. Accrued revenues for national non-domestic rates (NNDR), also known as business rates, are presently calculated using a mixture of cash information and assessments of likely receipts.
Our plan for improving this methodology has been outlined in previous editions of this article. While our new accruals methodology remains under development, we have ensured that wherever possible, our existing statistics reflect the impact of the coronavirus pandemic and government policies.
McCloud case and other changes to pension data
During 2021, we will be updating our pension estimates to revise the discount rate assumption from 5% (nominal) to 4% (nominal) in line with international requirements. More information about this change is available in our publication Pensions in the national accounts, a fuller picture of the UK's funded and unfunded pension obligations: 2018. For the impact on public sector finance statistics, please see our methodological guide.
We will also be incorporating new data related to pension funds. Notably, some changes are expected as a result of the McCloud court case. Most public sector pension schemes affected by the McCloud remedy are unfunded. Obligations under such schemes are not recorded in the ESA 2010-based public sector finance statistics. Consequently, the remedy implemented by the unfunded schemes will have no direct impact on the balance sheet aggregates, and will affect public sector net borrowing (PSNB) only to the extent that the actual amount of pension benefits payable should change.
Unlike unfunded obligations, liabilities of funded pension schemes are included in the ESA 2010-based statistics. As a result, movements in the gross liability of the funded Local Government Pension Scheme will be transmitted simultaneously to the wider balance sheet aggregate, public sector net financial liabilities (PSNFL), and to the flow measure, PSNB, where a capital transfer will be recorded to reflect a negotiated change in obligations. The McCloud remedy will have no direct effect on PSND, which excludes all pension obligations.
Sale of railway arches
In February 2019, Network Rail completed the sale of its Commercial Estate business, primarily consisting of railway arches.
Public sector net debt at the end of February 2019 and the central government net cash requirement in February 2019 were reduced by an amount equivalent to the cash received by central government from the sale. We announced on 31 March 2020 that the agreement would mainly be treated as an operating lease with payments for market output being made over a long period of time. Further details are given in the public sector classification guide. This classification is not yet reflected in the statistics and, given the retrospective nature of the change, we expect to include it in the 2021 change package.
Payments to the EU under the Withdrawal Agreement
The Withdrawal Agreement lays out the settlement of financial commitments between the UK and the European Union (EU). With the end of the transition period on 31 December 2020, the UK's regular monthly Value Added Tax (VAT) and gross national income-based contributions to the EU budget stopped, and the mechanics of the remaining payments to settle the outstanding commitments have changed.
We have reviewed the statistical treatment of the payments being made following the end of the transition period. We judged that, for statistical purposes, they should be recorded as current international cooperation transfers and are included under current transfers abroad in the public sector finances (PSF) bulletin. Such transfers should be recorded when they must be made. Consequently, we will accrue each instalment to the time it is scheduled to be paid, which is expected to coincide with the cash payments.Nôl i'r tabl cynnwys
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