Government Deficit and Debt Under the Maastricht Treaty: September 2013

The UK publishes a monthly Public Sector Finances (PSF) statistical bulletin which provides the latest estimates of the public sector finances, including figures for public sector net borrowing and public sector net debt. These Public Sector Finances (PSF) statistical bulletins focus on data for the latest month and the financial year to date, although they also include long time series which put the data in context.

The PSF statistics, and the statistics in this bulletin, are both compiled using National Account concepts and rules, following the European System of Accounts 1995 (ESA95) and additional guidance in the Manual on Government Deficit and Debt.

Although the statistics in the PSF bulletin and this bulletin are compiled using the same data sources and following the same national accounting practices, there are some differences between the coverage of the two bulletins and the definitions of the key statistical aggregates.

There are three main differences between the figures. The first is one of coverage. The Public Sector Finances covers the entire public sector while the figures in this bulletin are restricted to general government. The general government sector, as defined in National Accounts, covers agencies and departments within central government and within local government. The public sector is a wider concept covering publicly-controlled companies as well as general government.

This means that this bulletin does not include the gross debt of public corporations. In the latest PSF bulletin, for the financial year 2012/13, the reported gross debt for non-financial public corporations was £10 billion and for financial public corporation was £1,799 billion.

The second difference is that the net debt measure reported in the PSF bulletin (and used by the UK Government for budget and forecast purposes) is calculated as the total stock of financial liabilities minus liquid assets. By contrast, the debt measure used as part of the Excessive Deficit Procedure (EDP) and reported in this bulletin is a gross debt measure which is calculated as the total stock of all financial liabilities.

The general government gross debt is higher than the general government net debt found by the total value of all general government liquid assets. The latest PSF bulletin estimates general government liquid assets at the end of the financial year 2012/13 to be £137 billion.

The third difference is that the EDP deficit statistics are compiled according to EDP rules described in the relevant legislation and following guidance in the Manual on Government Deficit and Debt. In two areas these rules and guidelines differ from those following in producing the net borrowing measure published in the PSF statistical bulletin.

The first area of difference is that general government net borrowing published in the PSF statistical bulletin (in accordance with ESA95 rules) excludes interest payments or receipts received as part of financial instruments known as swaps and forward rate agreements. However, the deficit measure in this bulletin explicitly includes these interest payments/receipts within the definition of the general government net borrowing.

A swap agreement is one where two parties agree to exchange cash flows. As an example, the Government may hold foreign currency bonds, whose interest payments are subject to variable exchange rates. In order to receive a more steady cash flow the Government may enter a swap agreement with another organisation where they agree to swap the interest flow of the foreign currency bonds with an alternative interest flow provided by the counterpart organisation. This is an illustrative example only and governments may enter into swap and forward rate agreements for a wide range of reasons.

The second area of difference is in the recording of expenditure on single use military equipment. In the UK National Accounts and PSF this expenditure is recorded on an accrued basis in line with International Financial Reporting Standards (IFRS). However, in this publication the military expenditure is accrued to the point of delivery of the goods, in line with Eurostat guidance in the Manual on Government Deficit and Debt.

The effect of including swap and forward rate agreements can increase or decrease general government net borrowing. Similarly, accruing military goods expenditure at the point of delivery, instead of as stage payments are made, can drive net borrowing up or down. In the financial year 2012/13, the adjustment for swap and forward rate agreements amounted to a decrease in net borrowing of £102 million, and the adjustment for military expenditure a decrease in net borrowing of £2,098 million.

A full reconciliation of the two deficit measures back to 1992/93 is available within Table M7 of this statistical bulletin.

For further information on the methodology employed within the Public Sector Finances and this bulletin, then a methodological guide (360.3 Kb Pdf) can be found on the ONS website.

There are nine tables included as part of this bulletin. Most tables extend back to 1992/93 in financial years and 1992 in calendar years. However, 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) can be reconciled with the general government net borrowing reported in the Public Sector Finances bulletin of 20 September 2013 (in £ million and as a percentage of GDP).

Table M8R shows revisions in deficit and debt between the figures published in this bulletin and those published in the last bulletin on April 2013 (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 into two 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.

1. Government deficit and debt under the Maastricht Treaty

   Article 126 of the Treaty on the Functioning of the European Union (commonly known as the Maastricht Treaty) 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 for compliance. These are a deficit to Gross Domestic Product (GDP) ratio of 3%, and a debt to GDP ratio of 60%.

   EU Member States have to report their actual and planned government deficits, and their levels of debt, to the European Commission to specific deadlines twice each year. The estimates in this statistical bulletin are supplied to the European Commission by ONS in accordance with the schedules in the Excessive Deficit Procedure. Forecasts for future years are provided separately by HM Treasury.

   The first deadline (1 April) is designed so that the European Commission can gain an early sight of Member States’ debt and deficit for the previous calendar year, and the second deadline (1 October) is to receive updates to these figures. However, for the United Kingdom, uniquely within the European Union, the Stability and Growth Pact sets the reference period to be the financial year (1 April to 31 March), recognising the different budgetary year arrangements in the United Kingdom. The second deadline (1 October) thus provides for the UK the first estimate for the latest financial year.

   The Protocol on the Excessive Deficit Procedure defines Government deficit and debt following the rules and principles laid out in the European System of Accounts 1995. This is also the manual that governs the United Kingdom’s National Accounts.

2. Data quality

   Data in this bulletin are consistent with those published in the latest Public Sector Finances statistical bulletin. A summary quality report (201.4 Kb Pdf) for the public sector finances is available on the ONS website. This report describes in detail the intended uses of the statistics presented in this publication, their general quality and the methods used to produce them.

3. Coherence

   The net borrowing (or deficit) data in this statistical bulletin are based on those published in the Public Sector Finances statistical bulletin of 20 September 2013, but have been modified to take account of a European Regulation that requires payments/receipts for certain financial instruments (ie swaps and forward rate agreements) to be treated as interest, and hence part of general government net borrowing as reported for the Excessive Deficit Procedure. The Regulation does not amend general government net borrowing for National Accounts purposes, which is the version presented in the Public Sector Finances Statistical Bulletin.

   The reconciliation between the net borrowing published in this bulletin and that published in the Public Sector Finances (PSF) statistical bulletin of 20 September 2013 is shown in table M7. It can be seen in table M7 that the net borrowing figures do not only differ due to the different methodologies for swaps but also differ with regard to the recording of expenditure on single use military equipment. In the UK National Accounts and PSF this expenditure is currently recorded on an accrued basis in line with International Financial Reporting Standards (IFRS). However, in this publication the military expenditure is accrued to the point of delivery of the goods, in line with Eurostat guidance.

   The estimate of GDP used in this bulletin is consistent with that published on 26 September 2013 in the UK National Accounts.

4. Relevance to users

   The UK Statistics Authority (UKSA) conducted an assessment of the Government Deficit and Debt Statistical Bulletin in 2011 to ensure that the bulletin and its compilation methods fully comply with all requirements of the National Statistics Code of Practice. A report of their findings was published on 3 November 2011. Following work to comply with the requirements itemised in the UKSA report, the Public Sector Finances has had designation as National Statistics confirmed.

   The United Kingdom Statistics Authority has designated these statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

   Designation can be broadly interpreted to mean that the statistics:

   • meet identified user needs
   • are well explained and readily accessible
   • are produced according to sound methods
   • are managed impartially and objectively in the public interest

   Once statistics have been designated as National Statistics it is a statutory requirement that the Code of Practice shall continue to be observed.

   As part of our continuous engagement strategy, we welcome comments on how else we might improve the Government Deficit and Debt Statistical Bulletin. If you have recommendations for the improvement of the Government Deficit and Debt Statistical Bulletin, please email them to psa@ons.gov.uk or see the contact details below.

5. Revisions

   Data in this bulletin are consistent with those published in the latest Public Sector Finances statistical bulletin. The public sector finances revisions’ policy was reviewed at the end of 2012 and subsequently updated to more fully reflect compilation processes. The Public Sector Revisions’ policy (59.3 Kb Pdf) is available on the ONS website.

   Revisions to the EDP data are consistent with the revisions period in the Public Sector Finances statistical bulletin, which aims to incorporate the most up-to-date information for all time periods and therefore revisions can be included for any time periods. A summary quality report can be found on the ONS website which provides further information on how the quality of the statistical measures is assured.

   One indication of the reliability of the key indicators in this bulletin can be obtained by monitoring the size of revisions. For this reason a new Annex has been introduced showing the magnitude of revisions between publications for general government net borrowing and general government consolidated gross debt. A summary of the information in the Annex can be found in the Summary table of revision indicators attached below.

   Summary table of revision indicators

   	Latest financial year value	Average financial year revision1	Average (absolute) financial year revision 1
   General Government Net Borrowing, £m (MDUK)	82,146	727.3	1,901.8
   General Government Net Debt, £m (YEQG)	1,386,687	1,225.7	1,826.4
   Source: Office for National Statistics
   Notes:
   1. Net Borrowing average revision relates to the last 8 years but the Net Debt average revision excludes the latest year so as to exclude distorting effects of the implementation of the classification change for Northern Rock Asset Management and Bradford & Bingley.

   Download this table Summary table of revision indicators

   .xls (54.8 kB)

   Table M8R and the “Revisions” section in the bulletin provide more detailed information on revisions between this publication and the previous publication in April 2013.

6. Relevant links

   The latest public sector finances statistical bulletin is available on the ONS website.

   Detailed data supplied to Eurostat under the Excessive Deficit Procedure are available on both the ONS website and on the Eurostat website. The latest available data are those published in April 2013. Once finalised the detailed data relating to this publication will be published on 21 October 2013.

   Eurostat analyse all data provided by Member States and publish a press release which places the UK figures in a European context and provides commentary on any issues specific to member states.

   Details of the revisions policy for this and the other public sector finances statistical bulletins are available in the Public Sector Revisions’ policy (59.3 Kb Pdf).

   Information on the classification of institutional units for the purposes of National Accounts can be found at National Accounts classifications.

   An inventory (133.3 Kb Pdf) of the data sources used within the data supplied for the Excessive Deficit Procedure is available on the ONS website.

7. A list of ministers and officials with pre-publication access to the contents of this bulletin is available on request. In addition some members of the Treasury’s Fiscal Statistics and Policy (FSP) team will have access to them at all stages, because they are involved in the compilation or quality assurance of the data, and some members of the Treasury’s Communications team will see the HM Treasury bulletin, but only within the 24 hour pre-release period, because they place the data on the website.

8. Publication policy

   Complete runs of series in the Public Sector Finances bulletin are available to download free of charge here. An electronic dataset is made available one working day after publication of the Public Sector Finances Statistical Bulletin. The dataset contains quarterly data consistent with the latest Public Sector Finances Statistical Bulletin, analysed by economic category and subsector.

9. Following ONS

   Follow ONS on Twitter and Facebook.

10. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gov.uk

    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.