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PUBLIC SECTOR FINANCES JANUARY 2000

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Provisional estimates of the public finances show that in January: ...
Provisional estimates of the public finances show that in January:

- The public sector surplus on current budget was£13.2bn

- Public sector net borrowing was minus£12.2bn

- At the end of January public sector net debt outstanding was£336.2bn, equivalent to 37.4 per cent of gross domestic product

Special factors

January's tax receipts include annual mainstream corporation tax

payments from companies with accounting years to end-March, plus

quarterly instalment payments of tax from large companies.

Income tax and capital gains tax receipts in January include

half-yearly payment of tax under self-assessment.

Next month

February may include some income tax and capital gains tax receipts

under self-assessment that were due in January but have not been

recorded until February.

LIST OF TABLES

1. Public sector: Surplus on current budget, net investment, net

borrowing, net debt£bn and per cent GDP.

2. Net borrowing by sector.

3. Central government accrued determinants.

4. Net cash requirement by sector.

5. Reconciliation of public sector net borrowing and net cash

requirement.

6. Central government net cash requirement determinants.

7. Net borrowing, net cash requirement, net debt year to date and net

debt as a percentage of GDP.

BACKGROUND NOTES

1. On 19 January 1999 the ONS published a guide to monthly public

sector finance statistics. It explains the concepts and measurement

of the monthly data previously published, and gives some long runs of

historical data. It is number 12 in the GSS methodological guide

series, ISBN 1 85774 296 6, and is available from the ONS Direct,

Room D140, Government Buildings, Cardiff Road, Newport, NP9 lXG

telephone 01633 812078. These background notes explain the new

monthly data.

2. The surplus on current budget is defined as net saving, plus

receipts of capital taxes, from national accounts under the European

System of Accounts 1995 (ESA95). It is the key measure for assessing

progress against the golden rule, one of the government's two strict

fiscal rules. This states that, on average over the economic cycle,

the goveernment should borrow only to invest and not to fund current

expenditure. So to accord with the rule, the average surplus on

current budget over the cycle should be positive.

3. Net investment minus the surplus on current budget gives net

borrowing. Procedures for calculating net borrowing are discussed in

the methodological guide. The surplus on current budget is obtained

by subtracting net borrowing from an estimate of net investment. For

central govemment this is checked against some monthly data for some

current and capital transactions.

4. Net investment is defined as investment less depreciation.

Investment is capital formation (acquisition of fixed assets, stocks

and valuables net of any sales) plus payments of capital grants less

receipts of capital grants. Data sources are: Capital expenditure:

for central government new procedures have been established to

collect capital expenditure monthly from departments within a

timetable needed for publication in this First Release. For local

government, monthly capital expenditure data are not available, so

estimates are made based on local government's view of its expected

capital expenditure for the year, updated by actual quarterly outturn

data, and monthly information on asset sales. For public corporations

there is a mixture of reported monthly capital expenditure figures

and estimates. Depreciation: depreciation is derived from a model

that uses assumptions about asset lives and a rolling estimate of the

public sector's stock of capital assets derived from capital

expenditure data. The figures are reasonably stable through time so

adequate monthly figures can be estimated consistent with the model's

expected quarterly outputs.

5. Public sector net debt consists of the public sector's financial

liabilities at face value minus its liquid assets - mainly foreign

exchange reserves and bank deposits. Net debt in this First Release

is calculated from the latest available measurement of the stock of

public sector financial liabilities and liquid assets, and then adds

the change in total net debt since then implied by the public sector

net cash requirement. This method is refined by taking account of

some other adjustments such as revaluations of the foreign exchange

reserves due to currency exchange rate movements, and

discounts/premia on the nominal price of debt

6. Public sector net debt is the key measure for assessing progress

against the Government's other strict fiscal rule, the sustainable

investment rule. This requires that public sector net debt, as a

proportion of GDP will be held over the economic cycle at a stable

and prudent level. The GDP figure used here is GDP for the 12 months

centred on when the debt is measured. Hence this requires an estimate

of GDP to be available covering the period from six months before to

six months after. An entirely mechanical procedure is used to derive

GDP figures for those periods where national accounts outturn data

are not available, and to produce monthly GDP figures. The procedure

computes the quarterly growth rate implied by Treasury's last

published forecasts of financial year money GDP, and applies those

growth rates to the latest quarterly GDP figure published by ONS.

Monthly figures are derived by dividing the quarters by three.

7. Net borrowing is consistent with the definitions in (ESA95).

Public sector net borrowing (PSNB) is the Government's preferred

measure of the short term impact of fiscal policy on the economy

8. From March 2000, general government net borrowing on an (ESA95)

basis, as shown in this First Release basis will be reported to the

European Commission under the requirements of the Maastricht Treaty.

(It was previously reported on an ESA79 basis).

9. The Current and capital accounts for each of the three sectors

shown here are available quarterly. These appear in Public Sector

Accounts which is published with national accounts about 12 weeks

after the end of the latest quarter reported and Provisional Public

Sector Accounts which is published about 8 weeks after the end of the

latest quarter reported. Presentations of public sector finances

also appear in Financial Statistics.

10. The Pre-Budget Report, (published by HM Treasury 9 November 1999)

gave the following forecasts for the financial year 1999-2000:

- public sector surplus on current budget: #8.5 billion (#9.5 billion

excluding windfall tax receipts and associated spending)

- public sector net borrowing: minus #2.1 billion, (minus #3.5

billion excluding windfall tax receipts and associated spending);

- public sector net debt: 38.2 per cent of GDP;

These forecasts will be updated on 21 March 2000 in the Budget

Table B16 in the Pre-Budget Report gives a forecast of the components

of net borrowing and the surplus on current budget, using the same

ESA95 concepts and definitions as in this First Release.

11. Figures in this First Release are not seasonally adjusted.

12. Data underlying the graphs in the first release are available on

request from the ONS.

13. The data in this First Release may be obtained in computer

readable form via the ONS Databank service, which provides

macro-economic time series data on magnetic tape or disk. Details of

the service offered and the Schedule of Charges may be obtained from:

The ONS Sales Office, Office for National Statistics, B 1/06,1

Drummond Gate, London SWlV 2QQ (telephone 020-7533 5675).

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