Public sector finances, UK: August 2020

Other commentary from the latest public sector finances data can be found on the following pages:

• Government measures to address the impact of the coronavirus pandemic and the challenges we face in recording their effects on tax receipts
• Recent and upcoming changes to public sector finance statistics

• Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £35.9 billion in August 2020, £30.5 billion more than in August 2019 and the third highest borrowing in any month since records began in 1993.

• Central government tax receipts are estimated to have been £37.3 billion in August 2020 (on a national accounts basis), £7.5 billion less than in August 2019, with Value Added Tax (VAT), Corporation Tax and Income Tax receipts falling considerably.

• Central government bodies are estimated to have spent £78.5 billion on day-to-day activities (current expenditure) in August 2020, £19.5 billion more than in August 2019; this includes £6.1 billion in Coronavirus Job Retention Scheme (CJRS) and £4.7 billion in Self Employment Income Support Scheme (SEISS) payments.

• Borrowing in the first five months of this financial year (April to August 2020) is estimated to have been £173.7 billion, £146.9 billion more than in the same period last year and the highest borrowing in any April to August period since records began in 1993, with each of the months from April to August 2020 also being records.

• Central government net cash requirement (CGNCR) (excluding UK Asset Resolution Ltd and Network Rail) in August 2020 was £21.7 billion, £16.1 billion more than in August 2019 and the highest cash requirement in any August since records began in 1984.

• CGNCR in the current financial year-to-date (April to August 2020) was £221.2 billion, more than 11 times the highest cash requirement in any other April to August period on record (records began in 1984).

• Debt (public sector net debt excluding public sector banks, PSND ex) at the end of August 2020 was £2,023.9 billion or around 101.9% of gross domestic product (GDP), £249.5 billion more than at the same point last year.

The coronavirus (COVID-19) pandemic has had an unprecedented impact on public sector borrowing.

Provisional estimates indicate that the £173.7 billion borrowed in the first five months of the current financial year (April to August 2020) was just over three times the £55.8 billion borrowed in the whole of the latest full financial year (April 2019 to March 2020).

The coronavirus lockdown has meant central government tax receipts and National Insurance contributions (NICs) (combined) in the five months between April and August 2020 were down 13.4% on a year earlier. Over the same period, the government’s support for individuals and businesses contributed to an increase of 34.2% in central government’s day-to-day spending compared with a year earlier.

Figures published in the Office for Budget Responsibility’s (OBR’s) Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB) suggest that borrowing in the current financial year (April 2020 to March 2021) could reach £372.2 billion, around seven times the amount borrowed in the financial year ending (FYE) March 2020.

The extra funding required to support the government’s coronavirus relief schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have pushed public sector net debt at the end of August 2020 to 101.9% of GDP, the highest debt ratio since the FYE March 1961.

Although the impact of the pandemic on the public finances is becoming clearer, its effects are not fully captured in this release, meaning that estimates of accrued tax receipts (on a national accounts basis), borrowing and GDP in particular are subject to greater than usual uncertainty.

Given this uncertainty, and consistent with our approach in recent months, we place a greater emphasis than usual on our leading cash measure, the central government net cash requirement (CGNCR), the amount of cash needed immediately for the UK government to meet its obligations.

Our article Government measures to address the impact of the coronavirus pandemic and the challenges we face in recording their effects on tax receipts explains the larger coronavirus policies and how we are currently working with HM Treasury and HM Revenue and Customs (HMRC) to address the challenges of measuring the effects of the pandemic on tax receipts.
 

In August 2020, the public sector spent more money than it received in taxes and other income. Over this period, the public sector borrowed £35.9 billion, £30.5 billion more than it borrowed in August 2019. The substantial increases in borrowing in recent months reflect the emerging effects of government coronavirus (COVID-19) policies.

Estimates of accrued receipts (on a national accounts basis), expenditure and borrowing for the latest month of every release contain some forecast data. The initial outturn estimates for the early months of the financial year also contain more forecast data than other months, as profiles of tax receipts, along with departmental and local government spending, are still provisional. The degree of provisionality has been amplified by the uncertainty of the full impact of the coronavirus pandemic, meaning that the data for these months are even more prone to revision than other months and can be subject to sizeable revisions in later months.

Figure 4 summarises how each of the five sub-sectors (central government, local government, non-financial public corporations, public sector pensions and the Bank of England (BoE)) contribute to the overall growth in monthly borrowing in August 2020 and compares this with the equivalent measures in the same month a year earlier (August 2019).

Figure 4: How each sector contributes to the growth in monthly borrowing

Public sector net borrowing by sub-sector, UK, August 2020 compared with August 2019

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.
5. L&P – Land and property.
6. I & W – Income and wealth.
7. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
8. NICs – National Insurance contributions.
9. o/w – Of which

Download this image Figure 4: How each sector contributes to the growth in monthly borrowing

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Central government receipts

In August 2020, central government receipts are estimated to have fallen by 14.3% compared with August 2019 to £51.0 billion. Of this £51.0 billion, tax receipts were £37.3 billion, £7.5 billion less than in August 2019, with Value Added Tax (VAT), Corporation Tax and Income Tax receipts falling considerably.

These figures are always subject to some uncertainty, as many taxes such as VAT, Corporation Tax and Pay As You Earn (PAYE) Income Tax contain some forecast cash receipts data and are liable to revision when actual cash receipts data are received. There is a greater degree of uncertainty at present because the full impact of the coronavirus pandemic is unknown.

By contrast, receipts from self-assessed Income Taxes were slightly higher in August than the same period a year earlier. Self-assessed Income Taxes are due to be paid each July and January. As a result of late payments, August’s (and February’s) tax receipts tend to receive a boost.

Despite the government’s deferral policy, in which individuals have an option to defer their July self-assessment payment to January 2021 (because of the coronavirus pandemic), self-assessment receipts in August 2020 were £1.9 billion, £0.2 billion more than in August 2019.

In light of the government’s deferral policy, it is advisable to look at the combined self-assessed Income Tax receipts across the whole financial year when drawing conclusions from year-on-year comparisons.

Central government expenditure

In August 2020, central government bodies spent £82.4 billion, an increase of 34.7% on August 2019.

Of this, £78.5 billion was spent on its day-to-day activities (often referred to as current expenditure), such as:

• providing services and grants (for example, related to education, defence, and health and social care) – including £10.8 billion of expenditure on the current job furlough schemes: Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS)
• paying social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay)
• paying interest on the government’s outstanding debt

The remaining £3.9 billion was spent on capital investment such as infrastructure.

Departmental expenditure on goods and services

Departmental expenditure on goods and services in August 2020 increased by £6.1 billion compared with August 2019, including a £5.0 billion increase in the purchase of goods and services and a £0.9 billion increase in expenditure on staff costs.

This increase in pay and procurement partially reflects expenditure by the Department of Health and Social Care (DHSC) to respond to the coronavirus pandemic.

Subsidies paid by central government

In August 2020, subsidies paid by central government include both the CJRS and SEISS.

These temporary schemes are designed to help employers pay wages and salaries to those employees who would otherwise be made redundant and to support self-employed workers.

In August 2020, central government subsidy expenditure was £14.0 billion, of which £6.1 billion were CJRS payments and £4.7 billion were SEISS payments.

Estimates of CJRS payments on an accrued (or national accounts) basis for the period March to June 2020 are based on HM Revenue and Customs (HMRC) estimates, while those for July and August 2020 are based on Office for Budget Responsibility (OBR) projections. SEISS payments are currently recorded on a cash basis, reflecting HMRC coronavirus statistics.

Between 3 and 31 August 2020, the government ran its Eat Out to Help Out scheme, which offered a discount to diners. This discount was repaid back to participating businesses by HMRC and is provisionally recorded as a £0.5 billion subsidy paid by central government.

Interest payments on the government’s outstanding debt

Interest payments on the government’s outstanding debt in August 2020 were £3.6 billion, a £0.2 billion decrease compared with August 2019. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged.

Local government and public corporations data

Both local government and public corporations data for August 2020 are initial estimates, largely based on the OBR’s Coronavirus Reference Scenario (14 July 2020) and Fiscal Sustainability Report (July 2020).

Subsidies paid out to businesses as part of the Coronavirus Small Business Grant Fund; the Coronavirus Retail, Hospitality and Leisure Grant Fund; the Coronavirus Local Authority Discretionary Grants; and similar schemes in devolved administrations, are included based on administrative data published by the Ministry of Housing, Communities and Local Government (MHCLG) and by the Scottish and Welsh Governments.

Current and capital transfers between these sub-sectors and central government are based on administrative data supplied by HM Treasury and have no impact at the public sector level.

Borrowing in the current financial year-to-date

In the current financial year-to-date (April to August 2020), the public sector borrowed £173.7 billion, £146.9 billion more than in the same period last year. This unprecedented increase largely reflects the impact of the pandemic on the public finances, with the furlough schemes (CJRS and SEISS) alone adding £56.0 billion to borrowing as subsidies paid by central government.

Figure 7 summarises how each of the five sub-sectors (central government, local government, non-financial public corporations, public sector pensions and the BoE) contribute to the overall growth in monthly public sector net borrowing excluding public sector banks (PSNB ex) in the latest financial year-to-date (April to August 2020) and compares this with the equivalent measures in the same period a year earlier.

Figure 7: How each sector contributes to the growth in borrowing

Public sector net borrowing by sub-sector, UK, latest financial year-to-date (April to August 2020) compared with the financial year ending March 2019

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.
5. L&P – Land and property.
6. I & W – Income and wealth.
7. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
8. NICs – National Insurance contributions.
9. o/w – Of which.

Download this image Figure 7: How each sector contributes to the growth in borrowing

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Borrowing in the latest full financial year

This month, we publish the sixth estimate of borrowing for the full financial year ending (FYE) March 2020. Since the first estimate published on 23 April 2020, we have revised borrowing upwards by £7.1 billion from £48.7 billion to £55.8 billion. Under normal circumstances, this revision reflects the provisional nature of the data as initial data estimates are replaced by improved forecasts (and eventually outturn data). More notably, this revision reflects updated data being made available as the effects of the coronavirus pandemic on the public finances become clearer.

Borrowing had generally been falling since its peak in the FYE March 2010. However, borrowing in the latest full financial year (April 2019 to March 2020) was £17.0 billion more than in the previous financial year, largely because of the impact of the pandemic in March.

Figure 8: Borrowing in the latest financial year was around one-third (35.4%) of the amount borrowed in the financial year ending March 2010

Public sector net borrowing excluding public sector banks, UK, April 1993 to August 2020

Source: Office for National Statistics – Public sector finances

Notes:

1. Financial year 2019 to 2020 represents the financial year ending (FYE) 2020 (April 2019 to March 2020).
2. Financial year-to-date represents April to August.

Download this image Figure 8: Borrowing in the latest financial year was around one-third (35.4%) of the amount borrowed in the financial year ending March 2010

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The central government net cash requirement (CGNCR) excluding UK Asset Resolution Ltd and Network Rail is the amount of cash needed immediately for the UK government to meet its obligations. To obtain cash, the UK government sells financial instruments, gilts or Treasury Bills.

The amount of cash required will be affected by changes in the timing of tax payments by individuals and businesses but does not depend on forecast tax receipts in the same way as our accrued (or national accounts) based measures. The CGNCR consequently contains the most timely information and is less susceptible to revision. However, as for any cash measure, the CGNCR does not reflect the overall amount for which government is liable or the point at which any liability is incurred – it only reflects when cash is received and spent.

Table 1 demonstrates how CGNCR is calculated from its cash receipts and cash outlays. This presentation focuses on the central government’s own account and excludes cash payments to both local government and public non-financial corporations.

On 20 March 2020, the government introduced a Value Added Tax (VAT) payment deferral policy to support UK business during the coronavirus (COVID-19) pandemic by enabling them to pay Value Added Tax (VAT) due between 20 March and 30 June 2020 at a later date (though before 31 March 2021). This policy has substantially lowered VAT cash receipts over this four-month period.

On 8 July 2020, the government announced that it would introduce a temporary reduction of VAT rate in certain hospitality sectors from 15 July 2020 to 12 January 2021. This policy may lower VAT cash receipts over this six-month period, though the extent is currently unknown.

On the same day as we release the public sector finances, HM Revenue and Customs (HMRC) publishes a Summary of HMRC tax receipts, National Insurance contributions (NICs), tax credit expenditure and Child Benefit for the UK containing a detailed list of cash receipts.

At the end of August 2020, the amount of money owed by the public sector to the private sector was approximately £2.0 trillion (or £2,023.9 billion), which equates to 101.9% of gross domestic product (GDP).

Gilts make up the largest component of debt. At the end of August 2020, there was £1,718.0 billion of central government gilts in circulation (including those held by the Bank of England (BoE) Asset Purchase Facility Fund). These gilts are auctioned by the Debt Management Office (DMO), on behalf of central government in accordance with its financing remit.

There has been a substantial month-on-month increase in gilts issuance (at nominal value) in the current financial year, partially reflecting the need for extra funding to support the government’s coronavirus (COVID-19) relief schemes and to compensate for the fall in tax revenue.

The Bank of England’s contribution to debt

The BoE’s contribution to debt is largely a result of its quantitative easing activities via the BoE Asset Purchase Facility Fund (APF) and Term Funding Scheme (TFS).

If we were to remove the temporary debt impact of these schemes along with the other transactions relating to the normal operations of BoE, public sector net debt excluding public sector banks (PSND ex) at the end of August 2020 would reduce by £218.0 billion (or 11.0 percentage points of GDP) to £1,805.9 billion (or 90.9% of GDP).

Figure 9: Debt as a percentage of gross domestic product (GDP) has been falling in recent financial years; however, the measures introduced to address the COVID-19 pandemic have increased this ratio considerably

Public sector net debt excluding public sector banks, UK, March 1994 to the end of August 2020

Source: Office for National Statistics – Public sector finances

Notes:

1. Includes Asset Purchase Facility (APF), which includes the Term Funding Scheme (TFS) and TFS incentives for small and medium-sized enterprises (TFS SME).
2. Public sector net debt excluding public sector banks (PSND ex) is the combination of PSND ex Bank of England (BoE) plus the BoE’s contribution to PSND ex.
3. Public sector net debt excluding public sector banks (PSND ex) shown at the end of each financial year (March), unless otherwise stated.

Download this image Figure 9: Debt as a percentage of gross domestic product (GDP) has been falling in recent financial years; however, the measures introduced to address the COVID-19 pandemic have increased this ratio considerably

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Bank of England Asset Purchase Facility Fund

In March 2020, the BoE announced the expansion of its APF by £200 billion to a total of £645 billion. A further expansion of £100 billion was announced by the BoE in June 2020, taking the total stock of asset purchases financed by central bank reserves to £745 billion (at nominal value).

At the end of August 2020, the gilt holdings of the APF were £557.0 billion (at nominal value), an increase of £17.8 billion compared with a month earlier. Over the same period, the net gilt issuance by the DMO was £36.6 billion, which implies that gilt holdings by bodies other than the APF have grown by £18.8 billion since July 2020.

The estimated impact of the APF’s gilt holdings on PSND currently stands at £93.4 billion, the difference between the nominal value of its gilt holdings and the market value it paid at the time of purchase.

The final debt impact of the APF depends on the disposal of these financial instruments at the end of the scheme.

Further, the APF holds £18.1 billion in corporate bonds. The purchase of these bonds adds £18.1 billion to the level of public sector net debt.

Term Funding Scheme and Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises

In March 2020, the BoE announced the expansion of its TFS with the introduction of the TFS with additional incentives for small and medium-sized enterprises (TFSME).

In August 2020, an additional £10.4 billion of loans were made under the TFSME scheme. However, because of repayments, the total stock of loans under the TFS umbrella only increased by £3.5 billion, compared with last month, to £110.8 billion, adding an equivalent amount to PSND.

This section presents information on aspects of data or methodology introduced in September 2020.

The impacts of the changes described in this section are reflected in this month’s release for both public sector net borrowing excluding public sector banks (PSNB ex) and debt (PSND ex). However, given that we regularly update our estimates of public sector net financial liablilities (PSNFL) on a quarterly basis, the impacts of these changes will not be reflected in our PSNFL estimates until next month.

Table 2 presents the impact of each of these changes on PSNB ex. Alongside this bulletin, Impact of Pool Re and other classification, methodology and data changes introduced in September 2020: Appendix J presents the effect of these changes on all our headline public sector measures: public sector current budget, net investment, net borrowing, net debt and net financial liabilities excluding public sector banks.

Reclassification – Pool Re to the central government sub-sector

As previously announced, we have completed a classification assessment of Pool Reinsurance Company Limited (Pool Re) in the context of the internationally agreed statistical rules. We concluded that Pool Re should be classified to the central government sector with effect from 8 March 1993, the date it came into existence.

As a result of this reclassification, PSNB reduced by £0.3 billion in the financial year ending (FYE) March 2020, while at the end of March PSND reduced by £1.0 billion. This reduction in PSND was largely as a result of the consolidation of the central government gilts held by Pool Re, along with its holding of liquid assets.

This is the first time we have included the assets and liabilities of Pool Re on the public sector’s balance sheet. At the end of March 2020, we estimated that the assets held by Pool Re exceeded their liabilities and as a result we expect PSNFL to be reduced by £6.3 billion at the end of March 2020 in the dataset published on 21 October 2020.

Reclassification – London North Eastern Railway and Northern Rail to the central government sub-sector

From 24 June 2018, the government took over the running of East Coast Mainline train services, previously provided by the private sector company trading as Virgin Trains East Coast. This was followed, on 1 March 2020, by the transition of the Northern rail franchise into public ownership.

Having completed a classification assessment of these companies in the context of the internationally agreed statistical rules, we have concluded that they should be classified as public non-financial corporations from the point the government took over their running.

To quantify the fiscal impact of the transition into public ownership, it would be necessary to make assumptions about the amount of subsidy that would have been paid by government if the private companies had continued to operate. Therefore, the impacts on the fiscal aggregates are not shown in this publication.

Reclassification – Home Office immigration charges

In the national accounts and fiscal statistics, government income is categorised by its type; the three main types are taxes, social contributions and fees. In 2019, we examined the statistical classification of visa charges and the Immigration Health Surcharges.

We have established that compulsory charges for visas, citizenship and points-based applications should be recorded as taxes, while the optional premium service charges are payments for a service (fees). We also determined that the Immigration Health Surcharges should be recorded as a social contribution.

This reclassification affects the categorisation of revenue within central government but not its total amount and so has no impact on PSNB, PSND and PSNFL.

Reclassification – Dartford Crossing tolls

We have established that Dartford Crossing tolls should be recorded as taxes and the revenue from fines as current transfers. As with Home Office immigration charges, this reclassification only affects the categorisation of revenue within central government but not its total amount and so has no impact on PSNB, PSND and PSNFL.

Methodology change – an improvement to the accrued recording of Corporation Tax relating to company tax credits

HM Revenue and Customs (HMRC) has reviewed the methodology used in time-adjusting Corporation Tax relating to company tax credits. Previously, all tax offset by reduced liability tax credits was recorded within an “other CT” category and time-adjusted according to the payment schedule for regular QIPs (Quarterly Instalment Payments paid between four to six months in arrears). This review enabled HMRC to separate these receipts into the relevant sectors, enabling them to be time-adjusted according to their actual payment schedule.

This improvement has increased PSNB by £0.1 billion in the FYE March 2018 but has no effect on the underlying cash data and so PSND and PSNFL are unaffected.

The impact of this methodology change on the FYEs March 2019 and March 2020 are difficult to isolate as they have been included as a part of regular data revisions, though we expect them to be in line with the historical Corporation Tax revisions indicated in Table 2.

Data change – Funded public sector pensions

In September 2019, we changed the way in which we present funded public employment-related pension schemes in the PSF statistics. This year, we have included new data sources to reflect the composition of the pension schemes’ balance sheets more accurately. We have also updated our estimate of the pension liability with the latest available data.

The inclusion of new pensions data has reduced PSNB by £3.2 billion in the FYE March 2020, while PSND at the end of March 2020 has reduced by £4.6 billion.

Further, we have updated previous forecasts of the assets and liabilities of the pension sector and as a result we expect PSNFL to decrease by £26.0 billion at the end of March 2020 in the dataset published 21 October 2020.

Data change – Student loans

In September 2019, we changed the way in which we record student loans in the public sector finances statistics. Data underlying this recording are generally available annually, as new outturn and forecasts become available. In September 2020, we updated our previous estimates. Further updates outside of the annual cycle may occur after fiscal events or when new student loan policies are announced.

The inclusion of updated student loans data has reduced PSNB by £0.3 billion in the FYE March 2020. Loan assets are not captured under the measure PSND; therefore, any updates to student loans data has no impact on PSND.

Further, we have updated previous forecasts of the assets and liabilities associated with sudent loans on the public sector balance sheet and as a result we expect PSNFL to be increased by £0.2 billion at the end of March 2020 in the dataset published on 21 October 2020.

Data change – Capital consumption

In September 2020, we updated our estimates of capital consumption to reflect the inclusion of terminal costs (the costs incurred to prevent environmental problems when production ceases) in central government along with other regular data updates.

Any updates to capital consumption are PSNB neutral, that is, any increase in capital consumption leads to an equivalent increase in current budget deficit and an equal and offsetting reduction in net investment. The public sector current budget deficit increased by up to £2.0 billion in each of the 23 financial years between the FYE March 1997 and the FYE March 2020, with an equal and offsetting reduction to net investment over the same period.

There is no impact on PSNB, PSND and PSNFL impacts associated with a change to capital consumption.

Data change – Vehicle Excise Duty

Vehicle Excise Duties are paid by both businesses (as taxes on production) and households (as other taxes). Each year, we carry out a review to update and improve the proportions of duty allocated to each area based on our annual business survey.

There are no on PSNB, PSND and PSNFL impacts associated with this change.

Updated recording – Covid Corporate Financing Facility Fund

In April 2020, we recorded Covid Corporate Financing Facility Fund (CCFF) in the public sector finances on a provisional basis for the first time, this treatment was subsequently updated in September 2020.

The CCFF is a scheme under which the Bank of England (BoE), acting for HM Treasury, buys commercial paper issued by larger, non-financial corporations, to help with their cashflow position. These purchases are financed by a loan to central government from the BoE.

We have reviewed our provisional recording of the CCFF to take better account of the treatment of the liquid assets and cash transactions.

The treatment of the BoE loan on central government’s gross debt remains unchanged and as a result of this loan, central government gross debt at the end of August 2020 has increased by £17.5 billion. We have concluded that the commercial paper purchased by central government, being a liquid asset, should offset any increase in its gross debt resulting from the loan and as such, central government net debt is unaffected by the purchase of commercial paper under CCFF.

Given that the purchase of commercial paper is financed by the loan to central government from the BoE, we have concluded that there should be no impact on central government’s net cash requirement. We present the debt of the BoE on a net basis with the impact of the loan to central government consolidated within the BoE accounts and so there is no impact on BoE contribution to net cash requirement or net debt.

The purchase of commercial paper under CCFF has no impact on public sector net cash requirement (PSNCR) or net debt; however, there is a ongoing reduction in net borrowing and net debt of the order of around £6 million each month because of interest accrued on the commercial paper.

The data for the latest months of every release contain a degree of forecasts; subsequently, these are replaced by improved forecasts as further data are made available and finally outturn.

The coronavirus (COVID-19) pandemic has had an unprecedented impact on both tax receipts and expenditure. These impacts are likely to be revised further as the full effects of the coronavirus pandemic on the public finances continue to become clearer.

The revisions presented in this section for the period April to July 2020 are largely the result of new tax and expenditure data received from our data suppliers.

This month, we have updated our data for public sector funded pension schemes and student loans, improved our treatment of Corporation Tax credits, and included Pool Re as a central government body for the first time. These improvements caused revisions to previous estimates of borrowing in earlier financial years (see Section 7: Government measures to address the impact of the coronavirus pandemic).

Table 3 shows the revisions to the headline statistics presented in this bulletin compared with those presented in the previous bulletin (published on 21 August 2020).

Figures 10 and 11 show how each element of the public sector contributes to the revisions in borrowing for both the financial year-to-July 2020 and in the latest full financial year (April 2019 to March 2020) net borrowing.

Public sector net borrowing (excluding public sector banks) in the financial year-to-July 2020

This month, we have reduced our previous estimate of borrowing in the financial year-to-July 2020 by £12.7 billion, largely because of a reduction in previous estimates of central government procurement combined with a smaller increase in the previous estimate of central government tax receipts.

Central government in the financial year-to-July 2020

Central government is the largest component of the public sector. Of the £173.7 billion borrowed by the public sector (PSNB ex) in the financial year-to-date (April to August 2020), £178.7 billion was borrowed by central government, with local government in (borrowing) surplus by £4.4 billion. Because of its size, revisions to central government data tend to be substantially larger than those of the other sub-sectors.

Table 4 shows the revisions to the main components of central government net borrowing presented in this bulletin compared with those presented in the previous bulletin (published on 21 August 2020).

Central government tax receipts in the financial year-to-July 2020 have been increased by £2.4 billion compared with those published in our previous bulletin (published 21 August 2020).

Over this period, previous estimates of Pay As You Earn (PAYE) Income Tax were increased by £0.5 billion because of updated data, with a £1.1 billion reduction in June and a £1.5 billion increase in July.

National Insurance contributions (NICs) in the financial year-to-July 2020 have been reduced by £0.7 billion, largely because of a reduction in June of £0.9 billion, again because of updated data.

Alcohol Duty collected in July has increased by £0.4 billion (on a national accounts basis) compared with our previous estimate. Some of this additional revenue relates to repayment of arrears of duty payments (or debt).

Revisions to tax estimates reflect the uncertainty of the impact of the coronavirus pandemic on future cash tax receipts. Further revisions are likely. We have published a short article explaining the Challenges of measuring the effects of the coronavirus pandemic on tax receipts, which we update each month to reflect the latest information.

To estimate borrowing, tax receipts and National Insurance contributions (NICs) are recorded on an accrued (or national accounts) rather than on a cash receipt basis. In other words, we attempt to record receipts at the point where the liability arose, rather than when the tax is actually paid.

This process means many receipts are provisional for the latest period(s) as they depend on both actual cash payments and on projections of future tax receipts, which are “accrued” (or time-adjusted) back to the current month(s).

The cost of the day-to-day running of central government (or current expenditure) in July 2020 has decreased by £7.0 billion compared with that published in our previous bulletin (published 21 August 2020), largely because of updated procurement data (reducing by £6.6 billion). We expect this large revision to procurement to unwind across the whole financial year-to-July 2020 as further information becomes available on the timing of payments.

Local government

This month, we have reduced our previously published estimate of local government borrowing in financial year-to-July 2020 by £2.5 billion, having used published budget forecast data and some in-year outturn data for local authorities in England, to improve our initial estimates. In addition, we have updated information about transfers from central government such as grants to make payments of housing benefits. Our overall estimates remain broadly in line with the estimates presented in the Office for Budget Responsibility’s the (OBR’s) Fiscal Sustainability Report.

The degree of provisionality in our local government estimates has been amplified by the uncertainty of the full impact of the coronavirus pandemic, meaning that the data for these months are even more prone to revision than usual and may be subject to sizeable revisions in later months.

Public sector net debt (excluding public sector banks)

This month, we have reduced our previously published estimate of debt at the end of July 2020 by £8.5 billion to £1,995.5 billion. This downward revision is largely the result of new local government loans data and public sector funded pensions data, which reduced debt by £4.2 billion and £3.9 billion respectively.

Following their classification to the public sector, this month we have recorded Pool Re in the public sector for the first time. Pool Re hold a quantitly of central government gilts, which are now consolidated within the public sector. As a result of this consolidation, debt in July 2020 reduced by £0.9 billion.

The change in treatment of the COVID Corporate Financing Facility Fund (CCFF) has led to an increase in the recorded liquid assets held by central government from April 2020 to date and so a reduction in central government net debt. This reduction in central government net debt is completely offset by an increase in the Bank of England’s (BoE’s) contribution to net debt and so has no impact at a public sector level (see Section 7: Government measures to address the impact of the coronavirus pandemic).

Figure 10: How each element of the public sector contributes to the revision in financial year-to-date (April to July 2020) net borrowing (PSNB ex)

Revisions to borrowing since the previous public sector finances bulletin (published on 21 August 2020), UK

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.
5. L&P – Land and property.
6. I & W – Income and wealth.
7. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
8. NICs – National Insurance contributions.
9. o/w – Of which.

Download this image Figure 10: How each element of the public sector contributes to the revision in financial year-to-date (April to July 2020) net borrowing (PSNB ex)

.png (166.2 kB) .xls (87.0 kB)

Figure 11: How each element of the public sector contributes to the revision in full financial year (April 2019 to March 2020) net borrowing (PSNB ex)

Revisions to borrowing since the previous public sector finances bulletin (published on 21 August 2020), UK

Source: Office for National Statistics – Public sector finances

Notes:

1. PSNBex – Public sector net borrowing excluding public sector banks.
2. CGNB – Central government net borrowing.
3. LGNB – Local government net borrowing.
4. Public corporations include public sector pensions, Bank of England, and non-financial public corporations.
5. L&P – Land and property.
6. I & W – Income and wealth.
7. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget.
8. NICs – National Insurance contributions.
9. o/w – Of which.

Download this image Figure 11: How each element of the public sector contributes to the revision in full financial year (April 2019 to March 2020) net borrowing (PSNB ex)

.png (170.3 kB) .xls (87.0 kB)

The public sector

In the UK, the public sector consists of six sub-sectors: central government, local government, public non-financial corporations, public sector pensions, the Bank of England (BoE) and public financial corporations (or public sector banks).

Public sector current budget deficit

Public sector current budget is the difference between revenue (mainly from taxes) and current expenditure, on an accrued (or national accounts) basis; it is the gap between current expenditure and current receipts (having taken account of depreciation). The current budget is in surplus when receipts are greater than expenditure.

Public sector net investment

Net investment refers to the balance of acquisition less disposals of capital assets and liabilities.

Public sector net borrowing

Public sector net borrowing excluding public sector banks (PSNB ex) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment (capital spending less capital receipts)). PSNB is often referred to by commentators as “the deficit”.

Public sector net cash requirement

The public sector net cash requirement (PSNCR) represents the cash needed to be raised from the financial markets over a period of time to finance the government’s activities. This can be close to the deficit for the same period; however, there are some transactions, for example, loans to the private sector, that need to be financed but do not contribute to the deficit. It is also close but not identical to the changes in the level of net debt between two points in time.

Public sector net debt

Public sector net debt excluding public sector banks (PSND ex) represents the amount of money the public sector owes to private sector organisations including overseas institutions, largely as a result of issuing gilts and Treasury Bills, minus the amount of cash and other short-term assets it holds. PSND is often referred to by commentators as “the national debt”.

Debt interest to revenue ratio

The debt interest to revenue ratio (DIR) represents the proportion of net interest paid (gross interest paid less interest received) by the public sector (excluding public sector banks), compared with the non-interest receipts it receives in a given period.

Other important terms commonly used to describe public sector finances are listed in the Public sector finances glossary.

The Monthly statistics on the public sector finances: a methodological guide provides comprehensive contextual and methodological information concerning the monthly public sector finances statistical bulletin. The guide sets out the conceptual and fiscal policy context for the bulletin, identifies the main fiscal measures, and explains how these are derived and interrelated. Additionally, it details the data sources used to compile the monthly estimates of the fiscal position.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Public sector finances QMI.

The possible impact of the coronavirus on our publishing timetable

The coronavirus (COVID-19) pandemic presents a significant challenge. We are working hard to ensure the UK government has the vital information needed to respond to the impact of this pandemic on our economy and society. But, inevitably, the disruption caused by the pandemic means we may need a little extra time to quality assure some of our data before publication.

We will review our publication dates and announce any future short delays in due course. We have released a public statement on COVID-19 and the production of statistics.

Comparisons with official forecasts

The independent Office for Budget Responsibility (OBR) is responsible for the production of official forecasts for the government. These forecasts are usually produced twice a year, in spring and autumn.

The most recent official forecasts, presented in the OBR’s Supplementary forecast (13 March 2020) were made before the full effects of the pandemic were apparent.

On 14 April 2020, the OBR published an illustrative three-month lockdown scenario that assessed the potential impact of the coronavirus pandemic on the economy and public finances.

On 14 July 2020, they updated this analysis, presenting three scenarios in the Fiscal Sustainability Report. These reflected the economic and fiscal data up to 19 June 2020 and policy announcements up to 26 June 2020.

In the Fiscal Sustainability Report, the OBR explored three economic scenarios:

• upside scenario: in effect, an updated April reference scenario, with a sharp rebound in activity and no medium-term economic scarring
• central scenario: activity recovers more slowly and incorporates some scarring to potential gross domestic product (GDP)
• downside scenario: recovery is slower still and scarring is deeper

The expectations of future tax receipts and GDP used in this bulletin reflect those published OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB). These estimates are largely unchanged from the July 2020 Fiscal Sustainability Report central scenario monthly profiles – 14 July 2020 (XLS, 201KB), though they have been updated to reflect the Value Added Tax (VAT) and stamp duty policies announced on 15 July 2020.

Table 5 compares the headline public sector finance fiscal aggregates with the expectations published in the OBR’s latest expectations.

Gross domestic product (GDP)

Estimates of GDP used to present debt and other headline measures are partly based on provisional and official forecast data.

August 2020 requires data across five quarters of GDP. Of these, two are based on Office for National Statistics (ONS) published data and three are based on official estimates published by the OBR:

• data up to and including Quarter 1 (Jan to Mar) 2020 are based on the published GDP quarterly national accounts, UK: January to March 2020
• GDP for Quarter 2 (Apr to June) 2020 are based on the published GDP first quarterly estimate, UK: April to June 2020
• estimates of GDP for the subsequent three calendar quarters (July 2020 to March 2021) are based on expectations published in the OBR’s Fiscal Sustainability Report and summer economic update monthly profiles – 21 August 2020 (XLS, 201KB)

On 6 May 2020, we published Coronavirus and the effects on UK GDP, which explains how the global pandemic and the wider containment efforts are expected to impact on UK GDP as well as some of the challenges that National Statistical Institutes (NSIs) are currently facing.

Departure from the EU

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.

These statistics, and our sector classification process, draw on the European System of Accounts (ESA) 2010, the Manual on Government Deficit and Debt, and associated guides.

After the transition period, we will continue to produce our public sector finance statistics in line with the UK Statistics Authority’s Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards.

To ensure comparability with other countries, the statistical aggregates within the public sector finances release will continue to be produced according to the existing definitions and standards until further notice or those standards are updated.  

National Statistics status for public sector finances

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

Local government

Local government data for the financial year ending (FYE) March 2020 are mainly based on budget data for England, Wales and Scotland and estimates for Northern Ireland. Some provisional outturn data for the FYE March 2020 have been included where available (England capital expenditure).

In recent years, planned expenditure initially reported in local authority budgets has been systematically higher than the final outturn expenditure reported in the audited accounts. We therefore include adjustments to reduce the amounts reported at the budget stage.

For the FYE March 2020, we include a £2.0 billion downward adjustment to England’s current expenditure on goods and services, along with a £0.2 billion adjustment to Wales’ capital expenditure. We apply a further £2.3 billion downward adjustment to current expenditure on benefits in the FYE March 2020, to reflect the most recently available data for housing benefits. Further information on these and additional adjustments can be found in the Public sector finances QMI.

Local government data for the FYE March 2021 are initial estimates, based on the Office for Budget Responsibility (OBR) forecasts. These figures reflect our initial estimates of the impact of the coronavirus (COVID-19) pandemic. For the FYE March 2021, these estimates include a £3.0 billion upwards adjustment to budget forecast data for England’s current expenditure on goods and services. We have included £0.5 billion and £0.2 billion downward adjustments to Scotland’s and Wales’ capital expenditure respectively. We apply a further £0.8 billion adjustment to budget forecast current expenditure on benefits in the FYE March 2021, to reflect the most recently available data for housing benefits.

Current and capital transfers between local and central government are based on administrative data supplied by HM Treasury.

Non-financial public corporations

Public corporations data for the FYE March 2021 are initial estimates, based on OBR forecasts. Current and capital transfers between public corporations and central government are based on administrative data supplied by HM Treasury.

Public sector funded pensions

Pensions data for the FYE March 2020 and 2021 are our estimates based on the latest available data. Some of these estimates rely on actuarial modelling; this is a complex process that most public sector schemes conduct every three to four years. Until such valuations become available, we forecast the change in pension liability using our knowledge of the economic climate. Pensions in the public sector finances: a methodological guide outlines both the theory and practice behind our calculation of pension scheme estimates.

Public sector banks

Unless otherwise stated, the figures quoted in this bulletin exclude public sector banks (that is, currently only Royal Bank of Scotland, RBS). The reported position of debt, and to a lesser extent borrowing, would be distorted by the inclusion of RBS’ balance sheet (and transactions). This is because the government does not need to borrow to fund the debt of RBS, nor would surpluses achieved by RBS be passed on to the government, other than through any dividends paid as a result of the government equity holdings.