EU Government Deficit and Debt Return: September 2014

• This release is consistent with the information on UK deficit (or net borrowing) and debt that the UK and other European Union (EU) Member States are required to report to the European Commission at the end of September and March each year under the terms of the Maastricht Treaty. This bulletin reflects the first report to be made under the new European System of Accounts 2010 (ESA 2010) that all Member States have simultaneously implemented this September

• General government net borrowing (‘deficit’) was £102.3 billion in the financial year 2013/14 (5.9% of GDP), a decrease of £23.5 billion compared with 2012/13

• General government gross debt at the end of the financial year 2013/14 was £1,521.2 billion (87.8% of GDP), an increase of £100.6 billion compared to the end of 2012/13

• The methodological and data changes implemented in September 2014 have led to general government net borrowing for 2013 being revised upwards by £6.4 billion since the March 2014 bulletin. The main reason for this revision is the implementation of ESA 2010, and within this the main driver is the reclassification of Network Rail as a central government body which has increased 2013 net borrowing by £4.1 billion

• The methodological and data changes implemented in September 2014 have led to general government gross debt at the end of 2013 being revised upwards by £33.7 billion since the March 2014 bulletin. The main reason for this revision is the implementation of ESA 2010, and within this the main driver is the reclassification of Network Rail as a central government body which has increased 2013 gross debt by £33.9 billion

• The figures in this bulletin are consistent with the data published in the Public Sector Finances bulletin of 23 September 2014, for data periods from 1997 onwards. For the first time, the Public Sector Finances bulletin in September included the ‘Maastricht’ debt and deficit measures, and these will now be included monthly as part of the Public Sector Finances release

The statistics in this release have been substantially revised since both the March 2014 EU Government Deficit and Debt publication and also the Maastricht Supplementary Data Tables release in July 2014. These revisions largely reflect the move from European System of Accounts 1995 (ESA 1995) to ESA 2010, and apply to the full time period over which the statistics are reported; in this way year-on-year comparisons, and similar, continue to compare like with like.

This release complies with international standards set out in the ESA 2010. These standards ensure that economic statistics produced by all EU member states are compiled in a consistent, comparable, and reliable way. The new ESA 2010 standards were adopted by all EU countries in September 2014.

The UK’s Public Sector Finances also adopted ESA 2010 in September 2014, and therefore comparability with this release is maintained. More details can be found in the Transition to ESA 2010 article (138 Kb Pdf) published in February 2014, and further information can be found in the Developments to Public Sector Finances (255.2 Kb Pdf) article published in June 2014. Although these articles deal specifically with Public Sector Finances, the changes described for central and local government also apply to the European deficit and debt measures (also known as Maastricht debt and deficit).

The only ESA 2010 change which impacts on the European definition of general government gross debt is:

• Network Rail reclassification from private sector to central government

The main ESA 2010 changes which impact on the European definition of general government net borrowing are:

• Network Rail reclassification from private sector to central government

• recording of 3G and 4G spectra receipts as rent and not the sale of an asset

• new treatment of Royal Mail Pension Plan transfer to government

• new treatment for the Local Government Pension Scheme

• financial derivatives (‘swaps’) are no longer included within the Maastricht definition of deficit as a result of changes in European legislation (EU regulation 220/2014)

GDP is similarly affected by the implementation of ESA 2010, and therefore in some cases deficit or debt figures expressed as a percentage of GDP show downward revisions even though the actual numbers (in monetary terms) show upward revisions.

The March version of this bulletin was released in early April 2014 and the previous September bulletin in early October 2013. The release date for this bulletin has been put back to coincide with the release of the detailed datasets provided to Europe so that users can access this summary bulletin and the detailed datasets at the same time. In doing this there is no loss of timeliness in publishing the Maastricht debt and deficit figures as these are now available monthly in the Public Sector Finances' bulletins.

The EU Government Deficit and Debt statistical bulletin is published every six months, in April and October each year, to coincide with the dates when the UK and other European Union (EU) Member States are required to report to the European Commission their actual and planned government deficit and debt.

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%

The deficit is a measure of how much the government has to borrow to cover its expenditure once revenue has been netted off, for this reason it is also known as net borrowing. The monetary values quoted are in ‘current prices’; that is they represent the price of borrowing 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 Maastricht debt and deficit figures published in this bulletin, are the same as those published in the Public Sector Finances bulletin released on 23 September 2014. Although the Public Sector Finances bulletin now includes Maastricht debt and deficit figures there are two key differences between the main borrowing and debt measures published in the Public Sector Finances (i.e. PSNB ex and PSND ex) and the deficit and debt figures published in this bulletin.

1. This bulletin includes only debt and deficit recorded to central and local government, whereas the Public Sector Finance bulletin also includes measures of other public sector bodies.

2. This bulletin reports gross debt, that is all financial liabilities of central and local government, whereas the Public Sector Finances’ headline measure is net debt, that is the financial liabilities minus liquid assets (i.e. official reserve assets and other cash or cash-like assets).

This section provides the latest headline data for deficit (net borrowing) and debt and supporting information.

This is the first EU Government Deficit and Debt Return statistical bulletin to contain estimates for the financial year 2013/14. Although figures were previously available within the Q1 2014 ‘Maastricht Supplementary Data Tables’ release, these were on an ESA 1995 basis and not an ESA 2010 basis.

The August 2014 Public Sector Finances bulletin first published estimates on an ESA 2010 basis for the headline measures of general government net borrowing and general government gross debt on 23 September 2014. This bulletin provides further information of these estimates and presents them in the context of the European Union (EU) requirements.

Table 1 shows the headline measures on a financial year and calendar year basis both as £ billion values and as a percentage of Gross Domestic Product (GDP).

General government net borrowing

In the financial year 2013/14, the UK government deficit (net borrowing) was £102.3 billion (5.9% of GDP). This is the fourth annual reduction in the deficit since 2009/10 when it was £162.7 billion (10.8% of GDP).

The deficit was above the 3% Maastricht ‘Excessive Deficit’ reference value between 2003/04 and 2005/06, and just below it in 2006/07. Since then it has been above the reference value.

In the calendar year 2013, the UK government net borrowing was £99.3 billion (5.8% of GDP). This is the fourth annual reduction in the deficit since 2009 when it was £160.2 billion (10.8% of GDP). However, in 2013 the deficit was significantly higher than the pre-financial crisis deficit of £44.0 billion in 2007.

The estimates of net borrowing include:

• the impact of the transfer of Royal Mail Pension Plan historic assets and liabilities in April 2012

• the transfer of cash from the Bank of England Asset Purchase Facility from January 2013 onwards

• the reclassification of Network Rail to central government from April 2004 onwards

• the auction of 3G Mobile Phone Spectra licenses in 2000 and the auction of 4G Mobile Phone Spectra licenses in February 2014

• the new ESA 2010 treatment of the Local Government Scheme

Articles explaining how these events impact on general government net borrowing under ESA 2010 can be found on the ONS website.

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

General government gross debt

At the end of the financial year 2013/14, UK government gross debt was £1,521.2 billion (87.8% of GDP). This is the 11th consecutive annual increase. The general government gross debt first exceeded the 60% Maastricht ‘Excessive Deficit’ reference value in 2009/10 when it was £1,073.8 billion (71.5% of GDP).

At the end of the calendar year 2013, UK government gross debt was £1,494.7 billion (87.2% of GDP).

The long term general government gross debt as a percentage of GDP is illustrated in Figure 2. It shows that the general government debt has increased steeply from 2007/08 but also demonstrates that between 1995/96 and 2001/02 general government gross debt as a percentage of GDP was falling.

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 net borrowing is limited by the entrepreneurial income earned by the Bank of England in the previous year.

On a financial year basis in 2013/14 there was a £31.1 billion transfer from the Asset Purchase Facility to HM Treasury. The Bank of England entrepreneurial income for 2013/14 was calculated as £12.8 billion, and this is the amount of Bank of England dividend payments that impacted on net borrowing (although only £12.2 billion of the dividend payments related to the Asset Purchase Facility).

For the calendar year 2013, there was a transfer of £40.2 billion from the Asset Purchase Facility to HM Treasury, of which £18.6 billion affected net borrowing.

Lloyds Banking Group

On 17 September 2013 the UK Government began selling part of its share holding in Lloyds Banking Group. The sale of the shares does not impact on general government net borrowing or general government gross debt because it is purely a financial transaction exchanging equity for cash.

The cash received from the September 2013 sale of the government’s 6% stake (at 75p a share) was £3.2 billion.

A further sale was held on the 25/26 March 2014 of a 7.5% stake which raised £4.2 billion.

Following the March 2014 sale of shares Lloyds Banking Group was reclassified from being a public financial corporation to a private financial corporation.

Royal Mail Share Sale

In October 2013 the UK Government sold a 60% stake in Royal Mail, and at the same time awarded 10% plus 160,000 shares to eligible employees. As with the sale of shares in Lloyds Banking Group the share sale has no impact on general government net borrowing or general government gross debt but the value of the shares gifted to Royal Mail employees was recorded as a capital transfer increasing general government gross debt by £0.3 billion in 2013/14.

Following this flotation of Royal Mail on the London Stock Exchange, ONS reviewed the classification of the company and decided that it should be classified as a private non-financial corporation (moving it from the public to private sector). More detail on the decision is provided in the classification article Royal Mail Classification in National Accounts following Government’s Sale of Shares.

Royal Mail Pension Plan

In April 2012, the historic liabilities (estimated at £37.5 billion) and some of the assets (estimated at £28.0 billion) of the Royal Mail Pension Plan (RMPP) were transferred to central government.

Previously, under ESA 1995, the obligation to make future pension payments (i.e. the transferred liability) was treated as a contingent liability, and the value of the transferred assets was treated as a one-off capital transfer receivable reducing net borrowing by £28 billion in April 2012. Under ESA 2010, however, the future liabilities are crystallised at the point of transfer resulting, in the case of the RMPP, in a one-off capital transfer payable of £9.5 billion. This net borrowing increase is partly off-set by imputed revenue equal to the value of payable pension benefits relating to the RMPP. The overall impact for the RMPP transfer is that as a result of the move to ESA 2010 from ESA 1995, the 2012/13 net borrowing is increased by £36.2 billion while the 2013/14 net borrowing is reduced by £1.3 billion.

All European Union (EU) Member States report their latest deficit and debt values to the European Commission twice a year, which are then published by Eurostat (the European statistical agency). The figures in this statistical bulletin will be published by Eurostat on 21 October 2014.

The tables in this bulletin present the UK Government debt and deficit position at the end of both the financial and calendar years. The United Kingdom, uniquely within the European Union, is assessed against the deficit and debt on a UK financial year basis (i.e. April to March). In September 2014, the UK provided to Eurostat revised estimates for the calendar year (2013) and its first estimates for the financial year (2013/14) having previously provided in March 2014 initial estimates for 2013 and updated estimates for 2012/13.

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 last deficit and debt figures published on 23 April 2014, 10 Member States had a deficit exceeding the 3% reference value in 2013 and 16 Member States had gross debts exceeding the 60% reference value as at the end of 2013.

While the key statistics provided to Eurostat are those of general government consolidated gross debt and general government net borrowing (or deficit), detailed datasets showing the components of the debt and deficit statistics, as well as supplementary government finance statistics, are also supplied by Member States. A full set of government finance tables provided by the UK to Eurostat in September 2014 are published alongside this bulletin in the Maastricht Supplementary Data Tables release on the ONS website.

Table M8R presents the revisions to key aggregates since the last publication of the EU Government Deficit and Debt Return in April 2014. Revisions to the data are consistent with revisions incorporated within the Public Sector Finances statistical bulletin since March 2014.

The implementation of the European System of Accounts 2010 (ESA 2010) causes large revisions as detailed under ‘Important changes impacting the data within this release’. In most years, the single biggest impact on the headline figures of deficit (net borrowing) and gross debt is caused by the reclassification of Network Rail into central government. Table 2 below shows the impact of the key ESA 2010 methodological changes on the revisions observed in this release.

Further information on these and other revisions can be found in the PSF statistical bulletin and in the articles available on the public sector finances guidance and methodology web page.

The public sector finances can be complex. In order to make sure these important statistics are accessible to all we need users to provide us with feedback on how best to explain concepts and trends in the data. Please contact us at: psa@ons.gov.uk