UK government debt and deficit: March 2016

Quarterly estimates of UK government deficit and debt, given to the European Commission under the excessive deficit procedure protocol, as part of the Maastricht Treaty.

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Cyswllt:
Email Rob Pennington

Dyddiad y datganiad:
15 July 2016

Cyhoeddiad nesaf:
20 October 2016

1. Main points

General government deficit (net borrowing) was £74.5 billion in the financial year ending March 2016 - 4.0% of Gross Domestic Product (GDP), a decrease of £16.2 billion compared with the financial year ending March 2015 (when it was 4.9% of GDP).

General government gross debt was £1,649.2 billion at the end of the financial year ending March 2016 (87.7% of GDP), an increase of £47.5 billion compared with the end of March 2015 (when it was 87.2% of GDP).

This release is fully consistent with the latest data transmission on UK government deficit (or net borrowing) and debt that the UK and other European Union (EU) member states are required to report quarterly to the European Commission.

The figures for 1997 onwards in this statistical bulletin are fully consistent with the data published in the Public Sector Finances statistical bulletin of 21 June 2016.

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2. Background

The EU Government Deficit and Debt Return statistical bulletin is published quarterly in January, April, July and October each year, to coincide with when the UK and other European Union (EU) member states are required to report on their deficit (or net borrowing) and debt to the European Commission.

Article 126 of the Treaty on the Functioning of the European Union (EU) obliges member states to avoid excessive budgetary deficits. The Protocol on the Excessive Deficit Procedure, annexed to the Maastricht Treaty, defines 2 criteria and reference values with which member states’ governments should comply. These are:

  • a deficit (net borrowing) to gross domestic product (GDP) ratio of 3%
  • a debt to GDP ratio of 60%

The deficit is a measure of how much the government has to borrow to cover its expenditure once revenue has been netted off; for this reason it is also known as net borrowing. The monetary values quoted are in current prices, that is, they represent the price of borrowing in the year to which they relate without any adjustments for inflation. For comparisons over time the figures as a percentage of GDP (also measured in current prices) are used to provide a comparable time series.

The source data, and therefore the debt and deficit figures published in this bulletin (for the time period 1997 onwards), are the same as those published in the Public sector finances, May 2016 statistical bulletin published on 21 June 2016. There are 2 main differences between the main borrowing and debt measures published in the Public Sector Finances and the deficit and debt figures published in this bulletin:

1) this bulletin includes only debt and deficit recorded to central and local government, whereas the UK Public Sector Finances’ measures also include the debt and deficit of other public sector bodies

2) this bulletin reports gross debt, whereas the Public Sector Finances’ headline measure is net debt. Gross debt is the financial liabilities (debt securities, loans and deposits) of central and local government. Net debt is calculated as these financial liabilities less liquid assets (official reserve assets and other cash or cash-like assets)

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3. Summary of general government deficit and gross debt

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

The Public sector finances, May 2016 statistical bulletin, published 21 June 2016 gave estimates for the headline measures of general government net borrowing and general government gross debt. This bulletin provides further information of these estimates and presents them in the context of the European Union (EU) requirements.

Table 1 shows the headline measures on a calendar year and financial year basis both as £ billion values and as a percentage of gross domestic product (GDP)

General government deficit

In the financial year ending March 2016, the UK government deficit (net borrowing) was £74.5 billion (4.0% of GDP). This represents a decrease of £16.2 billion since the financial year ending March 2015, and is the lowest value since the financial year ending March 2008 when it was 2.9% of GDP (£45.6 billion). However, the deficit remains above the Maastricht reference value of 3.0%.

In the calendar year 2015, the UK government deficit (net borrowing) was £79.3 billion (4.2% of GDP). This represents a decrease of £22.6 billion since the calendar year 2014 and is the lowest value as a percentage of GDP since the calendar year 2007 when it was 2.9% of GDP (£44.3 billion).

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

General government gross debt

At the end of the financial year ending March 2016, UK government gross debt was £1,649.2 billion (87.7% of GDP). As a proportion of GDP, this is the 13th consecutive annual increase. The general government gross debt first exceeded the 60% Maastricht reference value at the end of the financial year ending March 2010 when it was 70.1% of GDP (£1,074.0 billion).

At the end of the calendar year 2015, UK government gross debt was £1,663.4 billion (89.0% of GDP). This represents an increase of £60.8 billion since the end of the calendar year 2014. The higher gross debt value at the end of the calendar year 2015, compared to at the end of the financial year ending March 2016, represents a small decrease in the first quarter of 2016. However it should be noted that quarterly values can fluctuate according to the time of recording of transactions.

The long-term general government gross debt as a percentage of GDP is illustrated in Figure 2.

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4. Recent events and methodological changes

This bulletin includes one methodological change implemented since last quarter’s release:

Improved recording of output and social transfers

In line with methodological improvements made in the UK National Accounts this quarter, this release implements guidance from the European System of Accounts 2010 related to the recording of payments to non-market producers and has led to revisions to market output, intermediate consumption, and social transfers. As these revisions are only the result of re-classifying expenditure under different transactions, there is no effect on total deficit (net borrowing). Further information is available in the article on Methodological improvements to National Accounts: Market/non-market output and social transfers in kind.

In addition to this methodological change, some of the more significant recent events which impact on the reported government deficit and debt are summarised below. For more information on the methodological changes and events impacting these statistics please see the relevant section of the Public sector finances, May 2016 statistical bulletin.

Bank of England Asset Purchase Facility Fund

The Chancellor announced on 9 November 2012 that it had been agreed with the Bank of England to transfer to the Exchequer the excess cash in the Asset Purchase Facility Fund. In line with European guidance (from Eurostat) the amount of cash that reduces deficit is limited by the entrepreneurial income earned by the Bank of England in the previous year.

In the financial year ending March 2016, there was a £8.5 billion transfer from the Asset Purchase Facility to HM Treasury. The Bank of England entrepreneurial income for the financial year ending March 2016 was calculated as £12.5 billion; as the amount of dividend transfers made did not exceed the entrepreneurial income, the impact of these transfers was to reduce deficit by £8.5 billion. The entrepreneurial income for the financial year ending March 2016 is £11.9 billion, and therefore this will be the limit for transfers that effect the deficit in the financial year ending March 2017.

Lloyds Banking Group

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

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

A further sale was held on 23 to 24 March 2014 of a 7.5% stake, which raised £4.2 billion.

Following the March 2014 sale of shares, Lloyds Banking Group was reclassified from being a public financial corporation to a private financial corporation. Ongoing sales of the remaining stake raised a further £1.7 billion in the financial year ending March 2015

Share sales in 2015

Further share sales have occurred in the financial year ending March 2016. These are as follows:

  • the sale of the government’s 40% stake in the cross-Channel train operator Eurostar raised £757 million in May
  • the sale of half of the government’s retained shareholding in Royal Mail (a 15% stake) raised £750 million in June
  • the sale of 5.4% of the government’s stake in the Royal Bank of Scotland raised £2.1 billion in August
  • the ongoing sale of shares in Lloyds Banking group has raised a total of £7.1 billion throughout the financial year ending in March 2016

Sale of loans by UKAR

In December 2015, UK Asset Resolution (UKAR) sold a portion of loan assets relating to mortgages previously held by Northern Rock and Bradford & Bingley. This sale raised approximately £13 billion in December.

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5. International comparability

Under the Excessive Deficit Procedure all European Union (EU) member states report their latest detailed deficit and debt information to the European Commission twice a year. Supporting statistical information, including deficit and debt values, are reported quarterly. Both the biannual and quarterly returns are published by Eurostat.

Both the debt and deficit figures in this statistical bulletin will be published by Eurostat on 22 July 2016.

The tables in this bulletin present the UK government debt and deficit position at the end of both the financial and calendar years. The UK, uniquely within the European Union, is assessed against the deficit and debt on a UK financial year basis (that is, April to March). In June 2016, the UK provided to Eurostat first estimates for the financial year April 2015 to March 2016, and revised estimates for the calendar year 2015. Estimates for the calendar year 2015 were first provided in March 2016.

The UK figures may be compared with those of other EU member states on the Government Finance Statistics section of the Eurostat website.

The latest UK government deficit and debt figures exceed the reference values set out in the Protocol on the Excessive Deficit Procedure. According to the latest deficit and debt figures published in April 2016, 7 member states had a deficit exceeding the 3% of GDP reference value in 2015 and 17 member states had gross debts exceeding the 60% of GDP reference value as at the end of 2015.

While the main statistics provided to Eurostat are those of general government consolidated gross debt and general government net borrowing (or deficit), supplementary government finance statistics are also supplied by member states. A full set of government finance tables provided by the UK to Eurostat in June 2016 are included in this release.

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6. Revisions

This is the first time that deficit and debt figures for the financial year ending March 2016 have been reported in this statistical bulletin series; it is the second time that deficit and debt figures for the calendar year 2015 have been reported. Since the last publication of the EU Government Deficit and Debt Return in April 2016, the deficit in the calendar year 2015 has been revised down by £2.9 billion (3.6%) and debt as at the end of 2015 has been revised up by £0.4 billion (0.0%).

Table M8R presents the revisions to main aggregates since the publication of the EU Government Deficit and Debt Return in April 2016. Revisions to the data are consistent with revisions incorporated within the Public sector finances statistical bulletin.

Main methodological changes and recent events that affect data movements are described under “Recent events and methodological changes”.

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7. Annex A - Data tables

There are 9 tables included as part of this bulletin. Most tables extend back to the financial year ending March 1993 in financial years and 1992 in calendar years. However, Table M7 extends back to 1995 and Tables M5, M6 and M9 only cover more recent periods.

All values in the tables are at current prices and are not seasonally adjusted. The debt figures are at nominal value. That is, the debt is valued at the face value of the debt, which is what the government will be liable to pay, and not the market value of the debt.

Table M1 shows the general government deficit and debt (in £ million and as a percentage of GDP).

Table M2 shows the general government debt by financial instrument (in £ million).

Table M3 shows transactions (or changes) in general government debt by financial instrument (in £ million).

Table M4 shows how the deficit can be reconciled with the changes in gross debt (in £ million).

Table M5 shows how the unconsolidated financial liabilities of central government and local government are consolidated to arrive at general government consolidated gross debt (in £ million).

Table M6 shows how the unconsolidated transactions (or changes) in financial liabilities of central government and local government are consolidated to arrive at consolidated transactions in general government gross debt (in £ million).

Table M7 shows how general government net borrowing (or deficit) is consistent with the general government net borrowing reported in the Public sector finances, May 2016 statistical bulletin published on 22 March 2016 (in £ million and as a percentage of GDP). The implementation of the European System of Accounts (ESA) 2010 in September 2014 has resulted in both outputs having consistent net borrowing figures from the financial year ending March 1998 onwards.

Table M8R shows revisions in deficit and debt between the figures published in this bulletin and those published in the last bulletin in April 2016 (in £ million and as a percentage of GDP).

Table M9 relates to government activities undertaken to support financial institutions during the financial crisis. It does not include wider economic stimulus packages. The table is presented in 2 parts:

Part 1 shows the impact on government deficit from both the expenditure undertaken by government and the revenue received as part of these support measures.

Part 2 shows the impact on the government balance sheet from the support measures. Part 2 also includes estimates of the contingent liabilities that government is exposed to through the activities undertaken to support financial institutions. All figures are in £ million. Following guidance from Eurostat, there has been a slight change to the presentation of figures in this table, and the assets and liabilities of defeasance structures that do not impact government debt are no longer included in the balance sheet information.

In addition, the Maastricht supplementary tables are included within this release. Information on these tables can be found within Annex B.

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8. Annex B – Maastricht supplementary data tables

The tables in this release are copies of the data supplied to Eurostat in January 2016.

In all tables the Eurostat convention for recording missing values is used. This convention uses “M” when something is not applicable or the requested data does not exist, and “L” when the requested data is not available or the data exists but has not been collected or recorded.

All tables cover UK general government; that is, UK central government and local government. The ESA tables 2, 25, 27, 28 are published 4 times a year (in January, April, July and October). The Excessive Deficit Procedure (EDP) tables are published twice a year (in April and October). ESA Table(s) 11 is published once a year (in April), and ESA Table 9 and the ESA Questionnaire (National Tax List) are published once a year (in October). All table valuations are in current prices and reported values are in £ millions.

European System of Accounts (ESA) Table 2 Main Aggregates of General Government

ESA Table 2 is a complete set of annual (calendar year) non-financial accounts for the time series 1990 to 2015 of the general government sector, compiled according to ESA 2010. Table 2 provides a breakdown of general government expenditure (both current and capital) and general government revenue. The table uses ESA 2010 codes to identify the different transactions, with “OTE” representing the total general government expenditure and “OTR” representing the total general government revenue. The table also shows the general government net borrowing (B.9), which is the difference between total revenue and total expenditure. The data is an annual presentation of the quarterly general government data in ESA Table 25.

European System of Accounts (ESA) Table 25 Quarterly Non-Financial Accounts of General Government

ESA Table 25 is a complete set of quarterly non-financial accounts for the time series Quarter 1 (Jan to Mar) 1987 to Quarter 4 (Oct to Dec) 2015 of the general government sector, compiled according to ESA 2010. Table 25 provides a breakdown of general government expenditure (both current and capital) and general government revenue. This table shows the general government net borrowing (B.9) which is the difference between total revenue and total expenditure. The data is a quarterly presentation of the annual general government data in ESA Table 2.

European System of Accounts (ESA) Table 27 Quarterly Financial Accounts of General Government

ESA table 27 (also known as QFAGG - quarterly financial accounts of general government) is a complete set of quarterly financial accounts for the time series Quarter 1 1987 to Quarter 4 2015 of the general government sector and its sub-sectors, compiled according to ESA 2010. The table deals with both financial transactions and the financial balance sheets. Data are consolidated within each sub-sector and are available both consolidated and unconsolidated at the general government level.

European System of Accounts (ESA) Table 28 Quarterly Government Debt (Maastricht Debt) for General Government

ESA Table 28 shows government debt on a quarterly basis for the time series Quarter 1 2000 to Quarter 4 2015, for general government and its sub-sectors, compiled according to ESA 2010. The table provides a breakdown of all debt instruments that are relevant in the EDP reporting of “Maastricht Debt”. These instruments are categorised under ESA 2010 as F.2 (cash and deposits), F.33 (securities other than shares) and F.4 (loans). Data are consolidated within each sub-sector and at the general government level; that is any debt liabilities of government which are held as assets by another part of government are removed.

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9. Annex C – Glossary

The main terms used in this bulletin are:

  • net borrowing – also known as deficit - measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment); a positive value indicates borrowing while a negative value indicates a surplus
  • gross debt – is a measure of how much the government owes at a point in time
  • gross domestic product (GDP) – a measure of the total economic activity in a country or region, therefore a country’s gross debt, represented as a proportion of their GDP, can be thought of as a measurement of that country’s ability to pay back its debt
  • asset purchase facility fund – an arm of the Bank of England able to purchase financial assets including government securities (gilts), the APF has earned interest which is periodically transferred back to central government
  • Maastricht deficit – general government net borrowing as defined within the Maastricht Treaty and Stability and Growth Pact (and as supplied to Eurostat)
  • Maastricht debt – general government gross debt as defined within the Maastricht Treaty and Stability and Growth Pact (and as supplied to Eurostat)
  • public sector net borrowing (PSNB ex) – includes central government, local government, public corporations and Bank of England but excludes public sector banks
  • public sector net debt (PSND ex) – includes central government, local government, public sector corporations and Bank of England but excludes public sector banks
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10. We value feedback

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

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11 .Background notes

  1. Government deficit and debt under the Maastricht Treaty

    Article 126 of the Treaty on the Functioning of the European Union (commonly known as the Maastricht Treaty) obliges member states to avoid excessive budgetary deficits. The Protocol on the Excessive Deficit Procedure, annexed to the Maastricht Treaty, defines 2 criteria and reference values for compliance. These are a deficit to Gross domestic product (GDP) ratio of 3%, and a debt to GDP ratio of 60%.

    EU member states have to report their actual and planned government deficits, and their levels of debt, to the European Commission to specific deadlines twice each year. Supporting information, including current values for deficit and debt, are reported quarterly. The estimates in this statistical bulletin are supplied to the European Commission by ONS in accordance with the schedules in the Excessive Deficit Procedure.

    The Protocol on the Excessive Deficit Procedure defines government deficit and debt following the rules and principles laid out in the European System of Accounts 2010. This is also the manual that governs the UK national accounts.

    The debt measure reported includes liabilities of currency, deposits, debt securities and loans at face value. Excluded are contingent liabilities as well as those related to equity, derivatives, pensions and accounts payable.

  2. Data quality

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

  3. Coherence

    The net borrowing (or deficit) data in this statistical bulletin are based on those published in the Public sector finances, May 2016 published 21 June 2016. The estimate of GDP used in this bulletin is consistent with that published on 31 March 2016 in the UK National Accounts.

    In accordance with European Commission practice, debt as a percentage of GDP is calculated as the debt at the end of a period divided by the GDP for the preceding year. This differs from the treatment in the Public sector finances where debt at a period in time is divided by the annual GDP centred at that same point in time. We have recently published an article describing The use of GDP in fiscal ratio statistics.

  4. Relevance to users

    The UK Statistics Authority last conducted an assessment of the EU Government Deficit and Debt Return statistical bulletin in 2015 to ensure that the bulletin and its compilation methods fully comply with all requirements of the National Statistics Code of Practice. A report of their findings was published on 8 October 2015. We are working to comply with the requirements itemised in the Authority’s report.

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

    Designation can be broadly interpreted to mean that the statistics:

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

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

    As part of our continuous engagement strategy, we welcome comments on how else we might improve the government deficit and debt statistical bulletin. If you have recommendations for the improvement of the government deficit and debt statistical bulletin, please email them to psa@ons.gov.uk or see the contact details below.

  5. Relevant links

    The latest Public sector finances bulletin is available on our website.

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

    Details of the revisions policy for this and the other public sector finances statistical bulletins are available at Public Sector Statistics Revisions policy. Information on the classification of institutional units for the purposes of National Accounts can be found at National Accounts classifications.

    An inventory of the data sources used within the data supplied for the Excessive Deficit Procedure is available on our website.

  6. Publication policy

    A complete set of Maastricht supplementary data tables included in this release are available on our website. Prior to December 2014, statistical bulletins for EU government deficit and debt returns were published separately from the supplementary tables. An electronic dataset is made available within the supplementary data release, which is consistent with the headline figures described in this bulletin.

  7. Revisions

    We publish revisions analysis on our website, showing the average revision for initial estimates compared with those calculated 1 year later over the last 10 years. It should be noted that methodological changes can have a significant effect on revisions observed; for example the implementation of ESA 2010 in September 2014 had a significant effect on revisions observed in that period. Therefore, while this revisions analysis may be of interest, users should be wary about using the size of revisions as a measure of the reliability of early estimates of data.

    A summary of the information in the revisions analysis linked above can be found in the summary table of revision indicators.

    Further information on these and other revisions can be found in the Public sector finances bulletin and the summary quality report relating to EDP and PSF statistics.

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Rob Pennington
psa@ons.gov.uk
Ffôn: +44 (0)1633 456659