UK government debt and deficit: March 2019

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.

Nid hwn yw'r datganiad diweddaraf. Gweld y datganiad diweddaraf

Cyswllt:
Email Emily Knock

Dyddiad y datganiad:
17 July 2019

Cyhoeddiad nesaf:
18 October 2019

1. Main points

  • General government gross debt was £1,821.3 billion at the end of the financial year ending March 2019, equivalent to 85.2% of gross domestic product (GDP) and 25.2 percentage points above the reference value of 60% set out in the Protocol on the Excessive Deficit Procedure.

  • General government gross debt first exceeded the 60% Maastricht reference value at the end of the financial year ending March 2010, when it was 69.6% of GDP.

  • General government deficit (or net borrowing) was £25.5 billion in the financial year ending March 2019, equivalent to 1.2% of GDP and 1.8 percentage points below the reference value of 3.0% set out in the Protocol on the Excessive Deficit Procedure.

  • This is the third consecutive financial year in which general government deficit has been below the 3.0% Maastricht reference value.  

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2. Things you need to know about this release

In the UK, the general government consists of two sub-sectors: central government and local government.

Deficit (or net borrowing) measures the gap between total revenue and total spending. A positive value indicates borrowing while a negative value indicates a surplus.

Debt represents the amount the public sector owes to UK private sector organisations and overseas institutions, largely a result of government financial liabilities on the bonds (gilts) and Treasury bills it has issued.

While borrowing (or the deficit) represents the difference between total spending and receipts over a period of time, debt represents the total amount of money owed at a point in time.

The debt has been built up by successive government administrations over many years. When the government borrows (that is, runs a deficit), this normally adds to the debt total. So reducing the deficit is not the same as reducing the debt.

EU withdrawal agreement

Although the Office for Budget Responsibility (OBR) discusses the EU settlement in their Economic and Fiscal Outlook – March 2019, the details in the report are still subject to negotiation.

There is insufficient certainty at this stage for us to complete a formal assessment of impact on the general government debt and deficit.

On 28 January 2019, National Statistician John Pullinger released a statement outlining our legislative preparations for a possible no-deal EU exit.

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3. Background to this release

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

The European Union (EU) is an economic and political union of 28 countries. It operates an internal (or single) market, which allows free movement of goods, capital, services and people between member states.

The EU countries are:

Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.

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

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

  • a debt to GDP ratio of 60%

For the UK, financial year (April to March) figures are used by the European Commission when assessing against the Protocol on the Excessive Deficit Procedure.

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4. What’s changed in this release?

This section presents information on aspects of data or methodology that have been introduced or improved since the publication of the previous bulletin, along with supporting information.

Bank of England Asset Purchase Facility Fund

In conjunction with HM Treasury, we have reviewed our recording of the dividends transferred from the Bank of England Asset Purchase Facility Fund (BEAPFF) to HM Treasury. The BEAPFF is classified outside the general government sector.

This has shown that interest payments on the outstanding Asset Purchase Facility (APF) loan have been overestimated in months when dividends are transferred to HM Treasury, because of a misinterpretation of the underlying administrative data.

Previously, in months when the Bank of England Monetary Policy Committee (MPC) did not meet, a cash interest payment was imputed on the loan, deducting it from the dividend payment to central government. We have revised our dividend payments from April 2016 onwards, adjusting these payments up by the previously imputed interest payments (which are now recorded as zero in months when the MPC does not meet).

In June 2019, we have therefore increased the APF dividend payments from the Bank of England to HM Treasury by £0.2 billion, £0.7 billion and £1.1 billion in financial years ending 2017, 2018 and 2019 respectively.

Central government net borrowing in this period was reduced by an amount equivalent to the transfer, while the net borrowing of the Bank of England was increased by an equal and offsetting amount.

UK contributions to the European Union budget

In February 2019, the UK’s gross national income (GNI) and Value Added Tax (VAT) contribution to the EU was £2.9 billion, £1.0 billion higher than in February 2018; the highest cash payment in any month on record (monthly records began in January 1993). This is largely because of the timing of payments made to the EU by all member states, rather than a reflection of any budgetary increase.

EU regulation sets out a “draw-forward” mechanism, which allows the European Commission to call up to five months’ worth of contributions within the first quarter of the calendar year from member states. This process enables the EU to manage its cash flow, as a larger proportion of the expenditure is paid out during the first quarter of the budgetary year.

The request for more funding from member states under the draw-forward does not increase contributions over the year, it reprofiles contributions over the budgetary year.

In 2019, the draw-forward request from the EU to all member states was for 4.7 months’ worth of contributions in the first quarter, compared with 3.7 months’ worth in 2018, which has led to the higher payment this year.

This payment was anticipated by the Office for Budget Responsibility (OBR) in their March 2019 forecast.

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5. How much is the general government gross debt?

At the end of the financial year ending March 2019, UK general government gross debt was £1,821.3 billion, equivalent to 85.2% of gross domestic product (GDP) (Table 1 and Figure 1). This represents an increase of £57.5 billion since the end of the financial year ending March 2018, although debt as a percentage of GDP fell by 0.1 percentage points from 85.3% over the same period. This fall in the ratio of debt to GDP implies that GDP is currently growing at a greater rate than government debt.

The average general government gross debt across the 28 EU member states at the end of December 2018 was 80.0% of GDP.

UK general government gross debt first exceeded the 60.0% Maastricht reference value at the end of the financial year ending March 2010, when it was 69.6% of GDP (or £1,076.6 billion) and it continues to remain above this reference value.

At the end of the calendar year 2018, UK government gross debt was £1,837.5 billion (86.8% of GDP).

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6. How much is the general government deficit?

In the financial year ending March 2019, the UK general government deficit was £25.5 billion, equivalent to 1.2% of gross domestic product (GDP) (Table 2 and Figure 2); the lowest since the financial year ending March 2002 when it was 0.4%. This represents a decrease of £17.1 billion compared with the financial year ending March 2018.

In the calendar year 2018, the UK government deficit was £32.3 billion (or 1.5% of GDP), a decrease of £5.3 billion compared with the previous calendar year.

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7. How do these figures compare with other publications?

The general government debt and deficit figures published in this bulletin (for the time period 1997 onwards) are fully consistent with those published in the Public sector finances, UK: May 2019 statistical bulletin, published on 21 June 2019.

There are two main differences between the headline debt and deficit measures published in the public sector finances, and the debt and deficit figures published in this bulletin.

Firstly, this bulletin includes only the debt and deficit of central and local government bodies. The public sector finances’ measures also include the debt and deficit of other public sector bodies, including public non-financial corporations and the Bank of England.

Secondly, this bulletin reports gross debt, while the public sector finances’ focus is net debt. Gross debt represents only the financial liabilities (debt securities, loans and deposits) of central and local government, while net debt deducts any liquid assets (official reserve assets and other cash or cash-like assets) from these financial liabilities.

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8. How do these figures compare internationally?

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

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

The debt and deficit figures in this statistical bulletin will be published by Eurostat on 19 July 2019 in context with the other 27 EU member states.

According to the latest published figures (PDF, 434KB) (24 April 2019), there were 14 member states (including the UK) that had a gross debt at the end of December 2018 that exceeded the 60% of GDP reference value.

The UK, uniquely within the EU, is assessed against the deficit and debt on a UK financial year basis (April to March).

The tables in this bulletin present the UK government debt and deficit position at the end of both the financial and calendar years.

Estimates for the calendar year 2018 were first provided to Eurostat in March 2019, while these are the first estimates for the financial year ending March 2019. In September 2019, the UK will provide Eurostat with the second estimates of the financial year ending March 2019, and the third estimates for the calendar year 2018.

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

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9. Revisions since previous release

This is the first time that debt and deficit figures for the financial year ending March 2019 have been reported in this statistical bulletin series. It is the second time that debt and deficit figures for the full calendar year ending 2018 have been reported.

Since the last publication of this bulletin in April 2019, there have been no revisions to the general government deficit for 2018, however in 2016 and 2017 the deficit has been revised upwards by £0.1 billion and £0.5 billion respectively. There have been no revisions to debt over the same period. These revisions are primarily the result of improved departmental (and other government bodies) data replacing previous estimates and changes mentioned above in section 4.

Table M8R presents the revisions to our main aggregates since the last publication of the government debt and deficit return, as reported to the European Commission in December 2018. These revisions are consistent with revisions incorporated within the Public sector finances statistical bulletin.

The Public sector finances revisions policy provides information on when users of the statistics published in the Public sector finances and UK government debt and deficit statistical bulletins should expect to see methodological and data-related revisions. Details of the methodology and sources employed can be found in the Public sector finances methodological guide.

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10. Quality and methodology

The public sector finances Quality and Methodology Information (QMI) report contains important information on:

  • the strengths and limitations of the data and how it compares with related data

  • uses and users of the data

  • how the output was created

  • the quality of the output including the accuracy of the data

The public sector finances methodological guide provides comprehensive contextual and methodological information concerning the monthly Public sector finances statistical bulletin and related publications, including this release.

The guide sets out the conceptual and fiscal policy context, identifies the main fiscal measures, and explains how these are derived and interrelated. Additionally, it details the data sources used.

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11. Looking ahead

This section presents information on aspects of data or methodology that are planned but not yet included in the public sector finances and related publications.

On 31 May 2019, we published the second in our series of development articles, Looking ahead – developments in public sector finance statistics: 2019. In this article we listed several short-term areas of work that we aim to implement in public sector finances (PSF) statistics within 18 months from the date of this publication, including:

  • treatment of student loans

  • presentation of pension data on a gross basis

  • International Monetary Fund’s Government Finance Statistics framework

  • treatment of depreciation

  • continuous development of public sector net financial liabilities

  • recording of leases

The article also provides some detail on the areas of planned medium- and longer-term development.

In December 2018, we announced our decision to replace the current treatment of student loans in our finance statistics with a treatment that better reflects government’s financial position. This new approach is described in our methodology article Student loans in public sector finances: a methodological guide, published on 21 June 2019. It recognises that a significant proportion of student loan debt will never be repaid by recording government expenditure related to the cancellation of student loans in the period that loans are issued, rather than decades afterwards.

When we announced our initial decision, we estimated (based on Office for Budget Responsibility (OBR) calculations) that introducing the new treatment would increase deficit by approximately £12 billion in the financial year ending March 2019. Since December 2018, we have worked with the Department for Education to develop and refine the modelling that underlies these estimates. Following this work, our latest estimate of the impact on deficit in the financial year ending March 2019 is that it will be increased by £10.6 billion.

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13. Annex B: Supplementary tables

European System of Accounts 2010: ESA 2010 Table 2

Main aggregates of general government ESA Table 2 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

ESA Table 25

Quarterly non-financial accounts of general government ESA Table 25 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

ESA Table 27

Quarterly financial accounts of general government Complete set of quarterly financial accounts of the general government sector and its sub-sectors compiled according to ESA 2010.

ESA Table 28

Quarterly government debt (Maastricht debt) for general government Government debt on a quarterly basis, for general government and its sub-sectors.

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Emily Knock
public.sector.accounts@ons.gov.uk
Ffôn: +44 (0)1633 456522