Public sector finances, UK: May 2015

• This is the third estimate of the complete financial year ending 2015 (April 2014 to March 2015); these are not final figures and may be revised as provisional data are replaced with finalised and audited data

• In the financial year ending 2015 (April 2014 to March 2015), public sector net borrowing excluding public sector banks (PSNB ex) was £89.2 billion (4.9% of Gross Domestic Product (GDP)): a decrease of £9.3 billion compared with the previous financial year

• In May 2015, PSNB ex was £10.1 billion (0.5% of GDP); a decrease of £2.2 billion compared with May 2014

• For the financial year ending 2015 (April 2014 to March 2015), the central government net cash requirement (CGNCR) was £93.6 billion; an increase of £15.2 billion compared with the previous financial year

• Cash transfers from the Asset Purchase Facility were £20.4 billion lower in the financial year ending 2015 (April 2014 to March 2015) than the previous financial year. Without the impact of these transfers, CGNCR was £5.2 billion lower in the financial year ending 2015 (April 2014 to March 2015) than the previous financial year

• At the end of May 2015, public sector net debt excluding public sector banks (PSND ex) was £1,500.2 billion (80.8% of GDP); an increase of £83.2 billion compared with May 2014

• At the end of May 2015, General Government Gross Debt was £1,617.9 billion (87.1% of GDP) and General Government Net Borrowing in the financial year ending 2015 (April 2014 to March 2015) was £93.4 billion (5.2% of GDP)

In February 2014 we published the 2013 Review of Public Sector Finance Statistics: Consultation Response (129.2 Kb Pdf) . In this article we provided a timetable to measure progess in the implementation of the proposed changes to the presentation of public sector finance. On 22 May 2015, an Update report on Implementation of the Review of Public Sector Finance Statistics (194.7 Kb Pdf) has been published, informing users of our progress against this timetable.

1. Understanding this release

   Introduces a number of important terms used within this release and how they fit together

2. Summary of latest net debt and net borrowing

   Provides the latest public sector finance headline data and supporting information

3. Net borrowing and debt data compared with OBR forecast

   Compares the latest available data with Office for Budget Responsibility forecasts for borrowing and debt

4. Public sector and sub-sector net borrowing

   Shows how the public sector net borrowing position is made up of central government, local government and public corporations' net borrowing

5. Public sector net cash requirement

   Provides the net cash requirement for the public sector (a measure of borrowing on a cash basis)

6. Public sector net debt

   Shows the amount the public sector owes (the accumulation of its borrowing)

7. Central government account

   Information about the central government account focusing on factors including the timing of receipts, expenditure and net investment

8. Recent events and methodological changes

   Information on events which have had an impact on the public sector finances in the last 12 to 18 months

9. How provisional outturn progress to final

   Information on the data sources used in Public Sector Finances and how these affect the full year financial outturn figures after the end of the year

10. Revisions since previous bulletin

    Information on the revisions between this publication and last month’s publication

11. New for this bulletin

    Information on new or recently added tables included in (or associated with) the current or future publications

This statistical bulletin provides important information on the United Kingdom (UK) government financial position. It enables government, the public, economists and financial analysts to monitor public sector expenditure, receipts, investments, borrowing and debt. By comparing these data with forecasts from The Office for Budget Responsibility (OBR) the current UK fiscal position can be evaluated.

The following guidance documents aim to help users gain a detailed understanding of the public sector finances: Monthly statistics on Public Sector Finances: a methodological guide (360.3 Kb Pdf) ; Developments to Public Sector Finances Statistics (255.2 Kb Pdf) and Quality and Methodology Information (201.4 Kb Pdf) . However, the following table and diagram should provide users with the important terms needed to understand these data and how the statistics relate to each other.

Diagram 1 illustrates how debt between periods changes as a result of transaction flows (for example expenditure and receipts) on an accrued and cash basis. The transaction flows are provided for the current financial year-to-date (April 2015 to May 2015). The headline measures of current budget deficit, net borrowing, net cash requirement and net debt are highlighted in the diagram as they provide the important indicators for the performance of the UK public finances. Where possible, reference has been made to the tables attached to the end of this bulletin.

When public sector current expenditure is greater than current receipts (income), the public sector runs a current budget deficit. The sum of net investment (spending on capital less capital receipts) and the current budget deficit constitute net borrowing. The diagram shows how net borrowing relates to the change in net debt.

The net cash requirement is closely related to net debt (the amount owed), which is mainly a cash measure. It is important because it represents the cash needed to be raised from the financial markets. Changes in net debt between 2 points in time are normally similar to the net cash requirement for the intervening period. The relationship is not an exact one because the net cash requirement reflects actual prices paid while the net debt is at nominal prices For instance, gilts are recorded in net debt at their redemption (or face) value, but they are often issued at a different price due to premia or discounts being applied. The net cash requirement will reflect the actual issuance and redemption prices, but net debt only ever records the face (or nominal) value.

Diagram 1: 2015/16 Financial year to date changes in Public Sector Finances (excluding public sector banks) (£ billion)

Notes

1. Cash transactions in (non-financing) financial assets which do not impact on net borrowing

2. Timing differences between cash and accrued data

3. Revaluation of foreign currency debt (for example foreign currency). Debt issuances or redemptions above/below debt valuation (for example Bond premia/discounts and capital uplifts). Changes in volume of debt not due to transactions (for example Sector reclassification)

We value your feedback

The public sector finances can be complex. To ensure these important statistics are accessible to all, we welcome your feedback on how best to explain concepts and trends in these data. Please contact us at: psa@ons.gov.uk

This release presents the first estimate of May 2015 public sector finances and updates previous financial years’ data.

Public sector finance data are available on a monthly basis, but due to the volatility of the monthly time series, it is often more informative to look at the financial year-to-date or complete financial year data in order to discern underlying patterns. Estimates are revised over time as additional data becomes available.

Table 1 compares the latest month and cumulative totals for the financial year-to-date with the equivalent period in the previous year. Time series for each component are available in Table PSA1.

Net borrowing for May 2015

In May 2015, public sector net borrowing excluding public sector banks (PSNB ex) was £10.1 billion; a decrease of £2.2 billion, or 18.0% compared with May 2014.

This decrease in net borrowing was largely due to a decrease of £1.6 billion in central government net borrowing, combined with a decrease of £0.6 billion in local government net borrowing.

Central government receipts in May 2015 were £45.0 billion, an increase of £1.8 billion, or 4.1% compared with May 2014. Of this:

• VAT receipts increased by £0.6 billion, or 5.6%, to £10.7 billion

• income-tax-related payments increased by £0.5 billion, or 5.3%, to £10.8 billion

• “Other” receipts increased by £0.3 billion, or 20.3%, to £2.0 billion largely due to the receipt of £0.3billion in fines (see the subsection “Fines” below)

• social (national insurance) contributions increased by £0.3 billion, or 3.4%, to £8.8 billion

Central government expenditure (current and capital) in May 2015 was £54.5 billion, an increase of £0.1 billion, or 0.2%, compared with May 2014. Of this:

• central government net investment (capital expenditure) decreased by £0.2 billion, or 8.7%, to £2.0 billion

• other current expenditure (mainly departmental spending) increased by £0.4 billion, or 1.4%, to £31.5 billion, largely as a result of increases in staff costs

• debt interest decreased by £0.2 billion, or 3.7%, to £4.1 billion; of this £4.1 billion, £1.2 billion is the interest paid to the Asset Purchase Facility Fund (APF) on it’s gilt holdings (see Table PSA9) which are PSNB ex neutral

• there was no substancial growth in net social benefits (mainly pension payments) which was £16.9 billion in both May 2015 and 2014; this was largely as a result of increases in state pension payments (within National Insurance Fund benefits) being offset with increases in public sector pension contributions

In May 2015, local government net borrowing (LGNB) was estimated as £0.2 billion, a decrease of £0.6 billion on the previous year. Local government data for May 2015 are provisional estimates calculated by ONS based on OBR forecasts.

In May 2015, there was no substancial growth in public corporations’ net borrowing which was estimated to be in surplus by £0.1 billion, equivalent to that in May 2014. Public Corporation data for May 2015 are provisional estimates calculated by ONS.

Fines

In May 2015 the Financial Conduct Authority (FCA) announced that a financial penalty had been imposed on Barclays Bank Plc for failing to control business practices in its foreign exchange business in London. The receipt of this fine has increased “other” receipts by £284 million in May 2015 and so reduced central government net borrowing by the same amount.

In addittion the Financial Conduct Authority (FCA) have announced that a financial penalty has been imposed on Deutsche Bank AG for LIBOR and EURIBOR-related (collectively known as IBOR) misconduct. The receipt of this fine has retrospectively increased “other” receipts by an additional £227 million in April 2015 and so reduced central government net borrowing by the same amount.

Net borrowing for the financial year ending 2015 (April 2014 to March 2015)

In the financial year ending 2015 (April 2014 to March 2015), public sector net borrowing excluding banking groups (PSNB ex) was £89.2 billion; a decrease of £9.3 billion, or 9.4% compared with the previous financial year.

PSNB ex for the financial year ending 2015 has been revised up £1.5 billion since last month's publication. For information on these revisions see section 10.

This decrease in net borrowing was predominantly due to a decrease of £12.3 billion in central government net borrowing.

In the financial year ending 2015 (April 2014 to March 2015), Bank of England (BoE) net borrowing was £1.3 billion lower than in the same period in the previous financial year, almost entirely due to Asset Purchase Facility (APF) transfers to central government. The combined net borrowing of central government and the BoE in the financial year ending 2015 (April 2014 to March 2015) was £13.6 billion lower than in the previous financial year.

Central government receipts (excluding APF transfers) for the the financial year ending 2015 (April 2014 to March 2015) were £601.8 billion, an increase of £21.7 billion, or 3.7%, compared with the same period in the previous financial year. Of this:

• income-tax-related payments increased by £7.6 billion, or 4.7%, to £169.2 billion

• VAT receipts increased by £4.6 billion, or 3.8%, to £124.8 billion

• corporation tax increased by £2.8 billion, or 7.2%, to £42.1 billion

• social (national insurance) contributions increased by £3.0 billion, or 2.8%, to £110.3 billion

• stamp duties (on shares, land and property) increased by £1.3 billion, or 10.4%, to £13.8 billion

When making revenue comparisons with the financial year ending 2014 (April 2013 to March 2014), it should be noted that it was likely income tax payments were affected by some firms delaying employee bonuses (from the end of the financial year ending 2013 (April 2012 to March 2013) until the financial year ending 2014 (April 2013 to March 2014) to take advantage of tax rate changes.

Central government expenditure (current and capital) for the financial year ending 2015 (April 2014 to March 2015) was £686.1 billion, an increase of £7.7 billion, or 1.1%, higher than the previous financial year. Of which:

• net social benefits (mainly pension payments) increased by £6.2 billion, or 3.2%, to £202.5 billion, mainly as a result of increases in state pension payments (within National Insurance Fund benefits) and public sector pension payments

• central government net investment (capital expenditure) increased by £2.4 billion, or 7.2%, to £36.4 billion, largely due to increases in capital transfers

• other current expenditure (mainly departmental spending) increased by £2.3 billion, or 0.6%, to £401.8 billion, mainly as a result of increases in departmental spending on goods and services which were partially offset by decreases in transfers to local government and current grants

• debt interest decreased by £3.2 billion, or 6.7%, to £45.4 billion. Of this £45.4 billion, £14.3 billion is the interest payable to the Bank of England Asset Purchase Facility on its gilt holdings (see Table PSA9) which are PSNB ex neutral

Local government net borrowing for the financial year ending 2015 (April 2014 to March 2015) was estimated at £2.6 billion, an increase of £4.1 billion compared with the previous financial year.

Public corporations’ net borrowing for the financial year ending 2015 (April 2014 to March 2015) was estimated to be in surplus by £2.5 billion, an increase in surplus of £0.2 billion compared with the previous financial year.

Public sector net debt

Public sector net debt excluding public sector banks (PSND ex) was £1,500.2 billion (80.8% GDP) at the end of May 2015 which was £83.2 billion, or 5.9% higher than in May 2014. This increase was a result of:

• £84.1 billion of public sector net borrowing

• less £0.9 billion in timing differences between cash flows for gilt interest payments and the accrued gilt interest flows

• less £0.1 billion in net cash transactions related to acquisition or disposal of financial assets of equivalent value (for example loans) and timing of recording

The Office for Budget Responsibility (OBR) normally produces forecasts of the public finances twice a year (normally in March and December). The latest OBR forecast was published on 18 March 2015.

As a result of the May 2015 election this year, the Chancellor of the Exchequer will present an additional Budget to Parliament on Wednesday 8 July 2015. We anticipate that OBR will publish a revised forecast of the public finances at this time.

Figure 1 and Table 2 enable users to compare emerging data against the OBR forecasts. Caution should be taken when comparing public finance data with OBR figures for the full financial year, as data are not finalised until after the financial year ends. Initial estimates soon after the end of the financial year can be subject to sizeable revisions in later months. In addition, in-year timing effects on spending and receipts can affect year-to-date comparisons with previous years.

Figure 1 illustrates the public sector net borrowing excluding public sector banks (PSNB ex) for the financial year ending 2015 (April 2014 to March 2015), along with the first 2 month’s borrowing of the financial year ending 2016 (April and May 2015).

In the financial year-to-date (April and May 2015), borrowing fell by £5.1 billion to £16.4 billion compared with the same period in 2014.

The OBR forecast for the financial year ending 2015 (April 2014 to March 2015) was £90.2 billion which was £1.0 billion above the outturn in financial year ending 2015 (April 2014 to March 2015) presented in this bulletin.

The OBR forecast for the financial year ending 2016 (April 2015 to March 2016) is £75.3 billion which is £13.9 billion below the outturn in financial year ending 2015 (April 2014 to March 2015) presented in this bulletin.

Table 2 summarises the percentage change between the latest data for the 2015/16 financial year-to-date and the same period in 2014/15. It contrasts these data with the percentage change between the latest full year outturn data for the financial year ending 2015 (April 2014 to March 2015) and the OBR forecast for the financial year ending 2016 (April 2015 to March 2016) (as published in March 2015).

On the same day as this bulletin is released, the OBR publishes a commentary on the latest figures and how these reflect on its forecasts. The OBR provides this commentary to help users interpret the differences between the latest outturn data and the OBR forecasts by providing contextual information about assumptions made during the OBR’s forecasting process.

Public sector net borrowing excluding public sector banks (PSNB ex) in financial year ending 2015 (April 2014 to March 2015) was £89.2 billion, or 4.9% of GDP.

Time series of PSNB ex as a percentage of GDP can be found in Table PSA5a.

It should be noted that while this publication presents a number of public sector fiscal statistics as ratios of the UK's (GDP), at this point in time, the provisional full financial year outturn for net borrowing are available but only 3 of the 4 quarterly GDP estimates are published.

Until GDP for Quarter 1 2015 (January to March) is published in the quarterly national accounts on 30 June 2015, an estimate of GDP based on published Office for Budget Responsibility (OBR) data will be used. Aggregates as a percentage of GDP should therefore be treated with caution until the Quarter 1 (January to March) 2015, Quarterly National Accounts estimate of GDP is incorporated into the July 2015 PSF publication.

An article, The use of GDP in fiscal ratio statistics (70.8 Kb Pdf) , explaining the procedure for deriving GDP forecasts for periods when national accounts outturn GDP is available on the ONS website.

Diagram 2 presents public sector net borrowing by sector for the current financial year-to-date (April 2015 to May 2015).

Diagram 2: 2015/16 financial year to date sub-sector split of PSNB excluding public sector banks (£ billion)

Notes

1. APF - Bank of England Asset Purchase Facility

Figure 2 illustrates public sector net borrowing excluding public sector banks (PSNB ex) for the last 22 financial years and highlights that between the financial year ending 1999 (April 1998 to March 1999) and the financial year ending 2001 (April 2000 to March 2001), borrowing was in surplus, that is the public sector was a net lender.

PSNB ex peaked in in the financial year ending 2010 (April 2009 to March 2010) as the effects of the economic downturn impacted on the public finances (reducing tax receipts while expenditure continued to increase). PSNB ex has reduced since then, although remained higher than before the financial year ending 2008 (April 2007 to March 2008) and the 2007 global financial market shock. PSNB ex in the financial year ending 2013 (April 2012 to March 2013) was higher than PSNB ex in the financial year ending 2012 (April 2011 to March 2012). One of the reasons behind this was the recording in April 2012 of an £8.9 billion payable capital grant in recognition that the liabilities transferred from the Royal Mail Pension Plan exceeded the assets transferred.

In the UK, the public sector consists of 5 sub-sectors: central government, local government, public non-financial corporations, Bank of England and public financial corporations (that is public sector banks). Table 3 summarises the current monthly and year-to-date borrowing position of each of these sub-sectors along with the public sector aggregates. Full time series for these data can be found in Table PSA2.

Diagram 3 presents public sector cash requirement by sub-sector for the current financial year-to-date (April 2015 to May 2015).

Diagram 3: 2015/16 Financial year-to-date sub-sector split of PSNCR excluding public sector banks (£ billion)

Notes

1. APF - Bank of England Asset Purchase Facility

The public sector net cash requirement excluding public sector banks (PSNCR ex) follows a similar trend to that of public sector net borrowing: peaking in the financial year ending 2010, though in recent years transfers from the Asset Purchase Facility have had a substancial impact on PSNCR ex but are PSNB ex neutral.

PSNCR varies from month to month because of the timing of cash transactions.

Public sector net cash requirement excluding public sector banks (PSNCR ex) was £12.0 billion in May 2015; £1.8 billion, or 12.7% lower than in May 2014.

A time series for PSNCR ex is included in Table PSA7A.

The central government net cash requirement (CGNCR) is a focus for some users, as it provides an indication of how many gilts (government bonds) the Debt Management Office may issue to meet the government’s borrowing requirements.

CGNCR was £11.1 billion in May 2015, £2.9 billion, or 21.0% lower than in May 2014.

In March 2015, the UK government announced the sale of its 40% stake in the cross-Channel train operator Eurostar. In line with previous disposals of shares , the proceeds of this sale have reduced the central government net cash requirement (CGNCR) in May 2015 by £757 million.

In the financial year ending 2015 (April 2014 to March 2015), CGNCR was £15.2 billion higher than the previous financial year. This was impacted by transfers from the asset purchase facility (APF) which reduced CGNCR.

In the financial year ending 2014 (April 2013 to March 2014), £31.1 billion was transferred from the APF to central government. By contrast, only £10.7 billion was transferred in the financial year ending 2015 (April 2014 to March 2015).

Events impacting on CGNCR

In the financial years ending 2016 (April 2015 to March 2016) the following events reduced the CGNCR:

• the transfers between the APF and central government

• the sale of shares in Lloyds Banking Group

• the sale of shares in Eurostar

In the financial years ending 2015 (April 2014 to March 2015) the following events reduced the CGNCR:

• the transfers between the APF and central government

• the sale of shares in Lloyds Banking Group

In the financial year ending 2014 (April 2013 to March 2014) the following events reduced the CGNCR

• the transfers between the APF and central government

• the sale of shares in Lloyds Banking Group and Royal Mail

In the financial year ending 2013 (April 2012 to March 2013) the following events reduced the CGNCR:

• the Royal Mail Pension Plan transfer and subsequent sale of assets

• the transfer of the Special Liquidity Scheme final profits

• the 4G Spectrum sale

• the transfers between the APF and central government

Public sector net cash requirement

Although the central government net cash requirement is the largest part of the public sector net cash requirement excluding public sector banks (PSNCR ex), the total public sector net cash requirement (PSNCR) can be very different. The reason is that the PSNCR includes the net cash requirement of the public sector banking groups. In recent years, the public sector banking groups have recorded large cash surpluses which have had a substantial impact on the public sector net cash requirement.

Diagram 4 presents public sector debt by sub-sector.

Diagram 4: Sub-sector split of PSND excluding public sector banks at May 2015 (£ billion)

Notes

1. PC Corporations' debt (consolidated) = non-financial PC gross debt (EYYD) + Less CG/NFPCs' gross debt (KSC8) + Less LG/NFPCs' cross holdings of debt (KSC9)

2. APF - Bank of England Asset Purchase Facility

Figure 3 illustrates public sector net debt excluding banking groups (PSND ex) between the financial year ending 1998 (April 1997 to March 1998) and the financial year ending 2015 (April 2014 to March 2015). PSND ex represents the amount of money the public sector owes to UK private sector organisations and overseas institutions, largely as a result of government liabilities on the bonds (gilts) and Treasury bills it has issued.

The increases in debt between the financial year ending 2009 (April 2008 to March 2009) and the financial year ending 2011 (April 2010 to March 2011) were larger than in the early part of the decade, as the economic downturn meant public sector net borrowing excluding public sector banks (PSNB ex) increased. Since then it has continued to increase but at a slower rate.

At the end of May 2015, public sector net debt excluding public sector banks (PSND ex) was £1,500.2 billion (80.8% of GDP); an increase of £83.2 billion compared with May 2014.

Net debt, for the purposes of UK fiscal policy, is defined as total gross financial liabilities less liquid financial assets, where liquid assets are cash and short-term assets which can be realised for cash at short notice and without significant loss. These liquid assets mainly comprise foreign exchange reserves and bank deposits. The net debt is a cash measure which is priced at nominal value (that is the cost to the issuer at redemption) and consolidated (that is intra-sector holdings of liabilities and assets are removed).

Figure 4 illustrates that the central government current budget deficit has reduced since the financial year ending 2010 (April 2009 to March 2010), but is still larger than before the global financial shock.

In May 2015, the central government current budget deficit was £9.0 billion, a decrease of £1.4 billion, or 13.6% compared with May 2014. In recent years the current budget has been in deficit in most months. January and July tend to be surplus months as these are the 2 months with the highest receipts.

a) Current receipts

As cash receipts are generally accrued back to earlier periods when the economic activity took place, the first monthly estimate for receipts is by nature provisional, and must include a substantial amount of forecast data.

Central government receipts follow a strong cyclical pattern over the year, with high receipts in April, July, October and January due to quarterly corporation tax returns being accrued to these months. January accrued receipts are particularly high due to receipts from quarterly corporation tax combining with those from income tax self-assessment. The revenue raised through income tax self-assessment, as well as affecting January receipts, also tends to lead to high receipts in February and, to a lesser degree, March.

Pay as you earn (PAYE) tends to vary little throughout the financial year on a monthly basis (excluding bonus months).

Events impacting on current receipts

In the financial years ending 2016 (April 2015 to March 2016) the following events increased current receipts:

• the transfers between the APF and central government by £3.9 billion (so far)

In the financial years ending 2015 (April 2014 to March 2015) the following events increased current receipts:

• the transfers between the APF and central government by £10.7 billion

In the financial year ending 2014 (April 2013 to March 2014) the following events increased current receipts:

• the transfers between the APF and central government by £12.2 billion

In the financial year ending 2013 (April 2012 to March 2013) the following events increased current receipts:

• the transfer of the Special Liquidity Scheme final profits by £2.3 billion

• the transfers between the APF and central government by £6.4 billion

The receipt of APF and SLS transfers by central government have no impact on public sector borrowing due to the central government receipts being offset by the payments from the Bank of England.

b) Current expenditure

Trends in central government current expenditure can be affected by monthly changes in debt interest payments which can be volatile as they depend on the monthly path of the Retail Prices Index. It can therefore be informative to consider the total central government current expenditure excluding debt interest payments.

The profile of accrued central government current expenditure excluding debt interest is generally less volatile through the year. However, one regular peak is in net social benefits, which are higher in November than in other months because this is when the winter fuel allowance is paid.

Growth in net social benefits is affected by inflation. Benefits were uprated by 5.2% in the financial year ending 2013 (April 2012 to March 2013) in line with the Consumer Prices Index (CPI). This contrasts with an equivalent figure of 2.2% in the financial year ending 2014 (April 2013 to March 2014) and 2.7% in the financial year ending 2015 (April 2014 to March 2015). Additionally, since the financial year ending 2014 (April 2013 to March 2014), the uprating only applies to benefits received by disabled people and pensioners - benefits for people of working age have only been increased by 1% in these 2 years.

It is difficult to compare the profile of monthly central government expenditure excluding debt interest and net social benefits since the financial year ending 2014 (April 2013 to March 2014) with earlier years because of a number of changes to central government funding for local authorities (in particular the timing of grants).

In the financial year ending 2012 (April 2011 to March 2012) and earlier years, the funds were distributed in multiple, similar-sized, payments throughout the year. In the financial year ending 2013 (April 2012 to March 2013), local authorities received almost all their funding from the Department for Communities and Local Government (DCLG) through redistributed business rates, rather than the Revenue Support Grant. In addition, in the financial year ending 2013 (April 2012 to March 2013), as in previous years, the bulk of the Revenue Support Grant was paid in April, with a smaller balance paid in February.

From the start of the financial year ending 2014 (April 2013 to March 2014), local authorities retained half of the business rates they collect, with the remainder redistributed through the Revenue Support Grant. The retained business rates are still classified as a central government tax (see background note on business rates). Furthermore, the Revenue Support Grant in the financial year ending 2014 (April 2013 to March 2014) includes a number of grants that were paid by other departments in the financial year ending 2013 (April 2012 to March 2013), including one to fund council tax benefit localisation. This means that central government current expenditure year-on-year growth for April and February is high, while year-on-year growth in other months is generally lower.

c) Net investment

Central government net investment is difficult to predict in terms of its monthly profile as it includes some large capital grants (such as those to local authorities and education institutions), and can include some large capital acquisitions or disposals, all of which vary from year to year. Net investment in the last quarter of the financial year is usually markedly higher than that in the previous 3 quarters.

Central government net investment includes the direct acquisition minus disposal of capital assets (such as buildings, vehicles, computing infrastructure) by central government. It also includes capital grants to and from the private sector and other parts of the public sector. Capital grants are varied in nature and cover payments made to assist in the acquisition of a capital asset, payments made as a result of the disposal of a capital asset, transfers in ownership of a capital asset and the unreciprocated cancellation of a liability.

Classification decisions

Each quarter ONS 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 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.

Royal Mail

In June 2015 the Government announced the sale of half of its retained shareholding in Royal Mail. This will be reflected in the June statistical bulletin, published on 21 July 2015.

New VAT rules for electronic services

On 1 January 2015, VAT rules relating to the supply of telecommunications, radio and television broadcasting and electronically supplied services changed.

Prior to 1 January 2015, supplies made by EU businesses to EU resident customers were subject to VAT in the country where the suppliers were established; from 1 January 2015, the supplies will be subject to VAT in the country where the customer is resident. The tax changes are as a result of European legislation.

The legislation provides for a transition period of 4 years during which the tax authority in the country where the supplier is located can retain a part of the VAT collected prior to passing on the remainder of the collected tax to the country where the customer is resident. From 1 January 2019 all collected tax must be transferred to the tax authority in the appropriate country.

We are currently considering how the transferred and retained tax should be treated in the public sector finances and will provide more detail over the coming months.

Diverted Profit Tax

The Government has introduced a new tax - the Diverted Profits Tax - to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK. The legislation is included in the Finance Act 2015, and applies from 1 April 2015.

We are currently considering how this Diverted Profit Tax should be treated in the public sector finances and will provide more detail over the coming months.

Government’s shareholding in Lloyds Banking Group

On 17 September 2013, the UK Government began selling part of its share holdings in Lloyds Banking Group (LBG). A further share sale on 23 and 24 March 2014 meant that the UK Government surrendered in total a 13.5% stake in the institution, a quantity sufficient to lead to LBG being re-classified from a public sector body to a private sector body.

On 17 December 2014 UK Financial Investments Limited (UKFI) announced its intention to sell part of the Government’s shareholding in Lloyds Banking Group (LBG) via a pre-arranged trading plan.

As with previous disposals of shares in LBG, the proceeds of these sales will reduce the central government net cash requirement (CGNCR) and public sector net debt (PSND) but have no impact on public sector net borrowing.

While impacts on main aggregates will be recorded each month in the public finances, for reasons of commercial confidentiality these sales will not be included in the ‘net acquisition of company securities’ series in Table PSA7D until after the sales period ends. UKFI initially indicated that this would be no later than 30 June 2015, however this has since been extended to 31 December 2015.

On the 1 June 2015 the government announced that it will launch a Lloyds share sale to the public "in the next 12 months".

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 the excess cash in the Asset Purchase Facility Fund (APF) to the Exchequer. The 2013 PSF review consultation (129.2 Kb Pdf) concluded that transactions between the APF and central government net out and have no impact on PSNB ex while the net liabilities of the APF increase PSND ex, which is reflected in this bulletin.

In May 2015, there was no transfer from the Bank of England Asset Purchase Facility Fund (APF) to HMT. The next expected transfer will be in July 2015.

The Bank of England entrepreneurial income for the financial year ending 2015 (April 2014 to March 2015) was calculated as £12.5 billion. This is the total amount of dividend transfers that can impact on central government net borrowing in the financial year ending 2016 (April 2015 to March 2016).

In the financial year ending 2013 (April 2012 to March 2013), there were £11.3 billion of transfers from the Asset Purchase Facility to HM Treasury.

In the financial year ending 2014 (April 2013 to March 2014), there were £31.1 billion of transfers from the Asset Purchase Facility to HM Treasury.

In the financial year ending 2015 (April 2014 to March 2015), there have been £10.7 billion of transfers from the Asset Purchase Facility to HM Treasury.

All cash transferred from the Asset Purchase Facility to HM Treasury is fully reflected in central government net cash requirement and net debt. For more detail of transactions relating to the Asset Purchase Facility, see Table PSA9.

For further information see: Recent Classification Decisions and Economic Events Affecting Public Sector Finances Statistics.

Grants to Local Government

The Revenue Support Grant (RSG) is the main revenue funding grant paid by central government to local government in England.

In the financial year ending 2015 (March 2014 to April 2015), more than half of the RSG was paid in April with the remaining balance paid in February and March. The payment profile has changed for the financial year ending 2016 (March 2015 to April 2016), with one-third of the grant paid in April and the rest expected to be paid evenly through the year.

This change in profile explains almost all of the fall in central government current transfers to local government and central government other current spending this April compared to April last year.

The impact of this change is offset in local government net borrowing.

EU contributions

Every year the European Commission (EC) reports retrospective adjustments to the EC budget contributions by EU member states based on the latest Value Added Tax (VAT) and gross national income (GNI) data.

In December 2014, the public sector finances recorded £2.9 billion of current expenditure in that month that related to increases in the UK contribution due to revised GNI data over a long historical period (as far back as 2002 for most member states). The gross liability of £2.9 billion for the UK arose in December 2014 and so has been recorded, then even though the cash will not be paid by the UK Government until 2015.

Previous month's bulletins have noted the existence of 2 transactions which would offset this £2.9 billion:

• a repayment (estimated by OBR as £1.2 billion) as the Commission returns all the member states’ additional contributions related to the data revisions

• an increase in the UK rebate (estimated by the OBR as £0.8 billion) as a result of the UK's additional payment

The rebate is a regular transfer made by the EC to the UK. These transactions are reflected in the public sector finances when they occur (and are recorded as part of "Current transfers received from abroad" in Table PSA6E).

The latest guidance received from Eurostat makes it clear that the £1.2 billion repayment should be recorded in 2014 in the same way that the £2.9 billion payment has been. This has resulted in the December 2014 current expenditure for that month being revised down by £1.2 billion to reflect the repayment from the EC to the UK, which is accrued to December 2014 although the cash transactions take place in 2015. This is consistent with the approach taken by the OBR at Autumn Statement 2014.

Of the £1.2 billion repayment, £0.5 billion was received in February 2015, so the accrued impact on borrowing in February 2015 is £0.5 billion higher than the cash impact on the net cash requirement to account for the fact that the £1.2 billion repayment has already been recorded within the net borrowing of December 2014.

More details of these EU budget contributions can be found on the EU Commission website.

Depreciation of the road network

The public sector finances must include estimates for the depreciation (or more strictly the consumption of fixed capital) of all public assets including the road network. The depreciation estimates are calculated using a modelled approach which applies an average life length to each asset category. The life length used for roads has been 75 years, but to harmonise with other European member states, the UK will be reducing this life length to 55 years. The result is to increase the estimated annual depreciation relating to the road network.

This methodological change is being made for the 2015 annual national accounts publication (Blue Book 2015) and will be made in the public sector finances at the same time. The estimated impact is to increase government depreciation in all years. The approximate impact on the financial year ending 2014 (April 2013 to March 2014) will be £1.1 billion, split roughly evenly between local and central government. This will have no impact on public sector net borrowing but will increase the current budget deficit by around £1.1 billion and decrease the net investment by the same amount.

Northern Rock Asset Management (NRAM) court case

In December 2014, the High Court ruled that NRAM plc was in breach of its obligations in relation to some customers with unsecured loans. NRAM estimates the potential cost of remediation at £261million and has stated that it will appeal this decision. We will consider how and when to record any remediation payments in due course.

UK Government interventions in the financial sector, 2007 to 2015

On 22 May 2015, an article listing UK Government interventions in the financial sector 2007 to 2015 (108.6 Kb Pdf) has been published. The article takes the form of a table listing each intervention in chronological order, with a corresponding summary of each.

This bulletin contains the second provisional estimate of public sector borrowing for the the financial year ending 2015 (April 2014 to March 2015). This may be revised in later months as provisional data sources are replaced with more final data sources.

In publishing monthly estimates, it is necessary that a range of different types of data sources are used. This section provides a summary of the different sources used and the implications that has for data revisions.

Latest month

Central Government: departmental expenditure data are provisional outturns for the most recent month and in some cases data are based on budget estimates (forecasts). Adjustments are made to these forecasts for some departments to account for likely under or over spending. For central government income, the data are again a mixture of provisional outturn data and forecasts.

Local Government: while some income data are available monthly, the majority of expenditure and income data are based on previously forecasted levels from the most recent quarter. There is an adjustment based on data from previous periods to account for likely under or over spending.

All data for public corporations for the latest month are based on our forecasts.

Earlier months

Central Government: for the 2 to 3 months before the latest month a mixture of outturn data and budget estimates (forecasts) are used but it increasingly becomes outturn.

Local Government: since the financial year ending 2012 (April 2011 to March 2012), for English Local Authorities, data from the Quarterly Revenue Outturn and Quarterly Capital Payments and Receipts forms collected by the Department of Communities and Local Government (DCLG) have been used to provide provisional outturn figures. These figures are included within the public sector finance statistics around 3 to 4 months after the end of the quarter.

For Local Authorities outside of England and all local authorities before the financial year ending 2012 (April 2011 to March 2012), in year expenditure data were based on the expected level of spending from Local Authority forecasts. This included estimates of likely under or over spending. However, quarterly data was used for capital expenditure in England.

Public Corporations: We conduct a quarterly survey of the 8 largest public corporations. These figures are used around 3 to 4 months after the end of the quarter. Data for the remaining public corporations are based on our estimates until the audited accounts are available.

Assessing the end year position

The implication is that the earliest estimates of outturn for the financial year ending 2015 (April 2014 to March 2015) will be subject to revision as revised data are provided to us by data suppliers. Depending upon the timing of the updated data from suppliers, this means that some months the revised estimates can be higher than the initial estimate and some months lower.

In publishing monthly estimates, it is necessary that a range of different types of data sources are used. A summary of the different sources used and the implications this has for data revisions is provided in the document Sources summary and their timing (22.8 Kb Pdf) . More detail of the methodology and sources employed can be found in the Public Sector Finances Methodological Guide (360.3 Kb Pdf) .

Borrowing

Table 4 summarises revisions between the data contained in this bulletin and the previous publication. The causes of revisions impacting on all measures of net borrowing are outlined.

This month’s bulletin reports revisions to public sector net borrowing (excluding public sector banks) (PSNB ex) are largely limited to the financial year-to-date ending 2015 (April 2014 to March 2015) and to April 2015.

Public Sector borrowing (excluding public sector banks)

Over the financial year-to-date ending 2015, (April 2014 to March 2015), PSNB ex was revised up by £1.5 billion, largely as a result of upward revisions to central government and public corporation net borrowing of £1.3 billion and £0.5 billion respectively, being partially offset by a £0.3 billion downward revisions to local government borrowing.

Last month’s bulletin noted that, initial outturn estimates for the early months of the financial year, particularly April, contain more forecast data than other months as profiles of tax receipts, along with departmental and local government spending are still provisional. This means that the data for these months are typically more prone to revision than other months and can be the subject to sizeable revisions in later months.

PSNB ex in April 2015 (reported in May 2015) was revised down by £0.6 billion, largely as a result of a downward revision to central government net borrowing of £2.3 billion, being partially offset by a £1.7 billion upward revision to local government borrowing.

Central government borrowing in the financial year-to-date ending 2015 (April 2014 to March 2015)

Over the financial year-to-date ending 2015 (April 2014 to March 2015) central government net borrowing (CGNB) has been revised up by £1.3 billion.

Current receipts were revised down by £0.6 billion, largely due to decreases in the estimates of income tax, interest & dividends, corporation tax and VAT of £0.5 billion, £0.5 billion, £0.2 billion and £0.2 billion respectively, being partially offset to an increase of £0.8 billion in social contributions.

Current expenditure was revised upward by £0.8 billion, with increases in the estimates of net social benefits (mainly pension payments) and "other current" spending of £0.8 billion and £0.7 billion respectively, being partially offset by a £0.7 billion decrease to the estimate of debt interest.

This £0.6 billion decrease in current receipts combined with the £0.8 billion increase in current expenditure, has lead to a £1.3 billion increase to the estimate of central government net borrowing over the financial year-to-date ending 2015 (April 2014 to March 2015).

Central government borrowing in April 2015

The estimate of central government net borrowing (CGNB) for April 2015 has been revised down by £2.3 billion.

Current receipts were revised up by £1.4 billion, largely due to increases in the estimates of corporation tax, taxes on production, “other” taxes (television licences), income tax and “other” receipts (fines) of £0.3 billion, £0.3 billion, £0.2 billion, £0.2 billion and £0.2 billion respectively.

Current expenditure was revised upward by £0.8 billion, with increases in the estimates of departmental spending and net social benefits (mainly pension payments) of £0.5 billion and £0.3 billion respectively.

This £1.4 billion increase in current receipts combined with the £0.8 billion increase in current expenditure and a £1.7 billion decrease in net investment has lead to a £2.3 billion decrease to the estimate of central government net borrowing in April 2015.

Local government borrowing

Local government net borrowing (LGNB) over the financial year-to-date ending 2015 (April 2014 to March 2015) has been revised downward by £0.3 billion.

Local government net borrowing (LGNB) in April 2015 has been revised upwards by £1.7 billion due mainly to changes to capital grants from central government.

Public corporations borrowing

Public corporation net borrowing (PCNB) over the financial year-to-date ending 2015 (April 2014 to March 2015) has been revised upward by £0.5 billion due to new data replacing forecasts in the final quarter. These new data decreased the estimate of Interest & Dividends (net) from public sector and increased the estimates of Gross Fixed Capital Formation.

To provide users with an insight into the drivers of the historical revisions between publications, this bulletin presents 3 revisions tables;

• table PSA1R complements PSA1 and provides a revisions summary (between the current and previous publication) to headline statistics in this release

• table PSA2R complements PSA2 and provides the revisions (between the current and previous publication) to net borrowing by sector and

• table PSA6R complements PSA6B and provides the revisions (between the current and previous publication) to the components of central government net borrowing

Tables PSA1R and PSA6R are published in excel format only in appendix A to this release.

In addition, appendix D to this bulletin presents a statistical analysis on several key components of the central government account (current receipts, current expenditure, net borrowing and net cash requirement) to determine whether their average revisions are statistically significant.

Public sector fiscal statistics expressed as ratios of gross domestic product (GDP)

This publication presents a number of public sector fiscal statistics as ratios of the UK's (GDP). At this point in time, the provisional full financial year outturn for current budget deficit, net investment and net borrowing are available but only 3 of the 4 quarterly GDP estimates are published. Until GDP for Quarter 1 (January to March) 2015 is published in the quarterly national accounts on 30 June 2015, an estimate of GDP based on published Office for Budget Responsibility (OBR) data will be used. Aggregates as a percentage of GDP should therefore be treated with caution until the Quarter 1 (January to March 2015), quarterly national accounts estimate of GDP is incorporated into the July 2015 PSF publication.

An article, The use of GDP in fiscal ratio statistics (70.8 Kb Pdf) , explaining the procedure for deriving GDP forecasts for periods when National Accounts outturn GDP is available on the ONS website.

The reconciliation of net cash requirement to debt

The issues and subsequent revisions to CGNCR reported in October were identified through work undertaken to reconcile the 3 different fiscal measures (that is net cash requirement, net borrowing and net debt) and to reconcile the central government net cash requirement with cash reported in audited resource accounts.

We are currently building these reconciliation processes into the monthly production systems. The first of these new reconciliations,table REC3, attempts to reconcile central government net cash requirement and net debt.

It should be stressed that, table REC3 is not currently designated a National Statistic and should be considered as a work-in-progress, with plans to introduced an improved version of the reconciliation in the coming months.

Public sector finance summary

In October 2014, we introduced a supplementary release summarising the latest public sector finance. The latest available version is Public Sector Finances, May 2015.

Based on the positive feedback we have received, we are currently working to develop this product further to meet user needs.

ESA 2010 Impact tables

The 2013 PSF Review recommended that, following implementation of the new ex measures, the key fiscal measures on the previous ex measures basis should continue to be published up until the end of the financial year ending 2015 (April 2014 to March 2015) so as to help users manage the transition period.

Table 5 provides estimates of what the current budget, net investment, net borrowing and net debt fiscal aggregates would have been if the ESA 2010 and 2013 PSF Review methodological changes had not been implemented.

Data changes and non-ESA 2010 and non-2013 PSF Review methodology changes are included within the estimates in Table 5.

The final update to Table 5 will published as a part of the Public Sector Finances, June 2015, statistical bulletin on 21 July 2015 after which it will be discontinued. We welcome your feedback on this decision. Please contact us at: psa@ons.gov.uk

An extended version of Table 5 with time series, extending back to the financial year 1998, is available as a download.