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Provisional estimates of the public finances show that in July the ...
Provisional estimates of the public finances show that in July the

public sector had:

- a current budget surplus of£2.2bn

- net borrowing of minus£1.0bn

and at the end of July:

- net debt was£380.8bn, equivalent to 32.7 per cent of gross

domestic product

Main Statistics

The main statistics released show, that in July 2004:

- the public sector current budget was in surplus by£2.2bn;

this is a£0.1bn higher surplus than in July 2003,when there

was a higher surplus than in July 2003, when there was a higher

surplus of£2.1bn;

- public sector net borrowing was -£1.0bn (ie net lending);

this is£0.2bn higher net borrowing than in July 2003, when net

higher net borrowing than in July 2003,when net higher borrowing was

-£1.2bn (ie net lending);

- the public sector net cash requirement (see table PSF4 - see ONS

website for details) was -£6.8 billion (i.e. a repayment), a£0.7

billion higher net cash requirement than in July 2003,when there was

a net cash requirement of -£6.2 billion (i.e. a repayment). N.B.

rather than looking at the cash measure, which can be misleading due

to timing factors, it is better to look at the other, accruals-based,


- at the end of July 2004 public sector net debt was£380.8 billion

(equivalent to 32.7 per cent of GDP). This compares to£344.2 billion

(31.1%) as at the end of July 2003.

Financial year to date (April 2004 - July 2004):

Monthly data may be volatile, so it can be misleading to read too

much into one month's data. The following paragraphs give information

on the financial year to date and comparisons with the corresponding

period of the previous financial year.

In financial year 2004/05 to date:

- the public sector current budget was in deficit by£10.5 billion;

this is a£0.1 billion higher deficit than in the same period of

2003/04, when there was a deficit of£10.4 billion;

- public sector net borrowing was£13.5 billion. This was£0.3

billion lower net borrowing than in the same period of 2003/04, when

there was net borrowing of£13.7 billion;

- the public sector net cash requirement (see table PSF7 - see ONS

website for details)was£4.6 billion;£5.4 billion lower net cash

requirement when compared with lower net cash requirement when

compared with lower the same period of 2003/04 when there was a net

cash requirement of£10.1 billion.

Revisions since last data release

The last public finance statistics were published on Tuesday 20th

July 2004.

The period from April 2004 has been revised in this release. There

have been revisions to both receipts and expenditure data.

Table PSF8R presents revisions to key aggregates. See ONS website for


The largest revisions normally occur in the month following first

release, when estimated and provisional data are replaced with firmer


Details of the revisions policy for this and the other public sector

first releases is available at:



1. A guide to monthly public sector finance statistics is available


No_12_v2.pdf It explains the concepts and measurement of the monthly

data, plus those previously published, and gives some long runs of

historical data. It is also available as a paper publication, number

12 in the GSS methodological guide series, ISBN 1 85774 296 6, (price

£5). These background notes explain the monthly data.

2. The current budget is derived, 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

Government 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. HM Treasury has

stated that progress against the golden rule will be measured by the

average surplus on the current budget, expressed as a ratio to GDP,

over the economic cycle. HM Treasury's provisional judgement is that

the current economic cycle began in 1999.The following table sets out

the figures for financial years from 1999/2000. See ONS website for

details. The Budget 2004 (published by HM Treasury on 17 March 2004),

which projected that the current cycle would end in 2005/06,gave the

following forecasts: 2003/04,-1.9%;2004/05,-0.9%;and 2005/06,-0.4%.

The cumulative current budget from the start of 1999/2000 is a

surplus of£4.8 billion.

3. Procedures for calculating net borrowing are discussed in the

methodological guide. The current budget is obtained by subtracting

net borrowing from an estimate of net investment. For central

government 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 net payments 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 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 that

are consistent with the model's expected quarterly outputs.

5. Public sector net debt is built up by first calculating the public

sector's financial liabilities that are related to the financing

items of the public sector net cash requirement (PSNCR). These are

scored at face value. Liquid assets, mainly foreign exchange reserves

and bank deposits, are then subtracted to reach net debt. Net debt in

this First Release is calculated from the latest available

measurement of the stock of public sector financing liabilities and

liquid assets, and adding the change since then implied by PSNCR.

This method is refined by taking account of some other adjustments,

such as revaluation's of the foreign exchange reserves due to

currency exchange rate movements, and discounts/premia on the nominal

price of debt issued.

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 Gross Domestic Product (GDP), will be held, over the

economic cycle, at a stable and prudent level. As stated in the

Economic and Fiscal Strategy Report (1998)the Government believes

that, other things being equal, net public debt should be below 40

per cent of GDP over the economic cycle. From Budget 2002 HM Treasury

has published public sector net debt excluding Budget 2002 HM

Treasury has published public sector net debt excluding Budget 2002

the effect of cyclical fluctuations, this is referred to as 'core

debt'.The GDP figure used to calculate the net debt ratio is that 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 HM Treasury 's last published forecast of financial year

money GDP, and applies those growth rates to the latest quarterly GDP

figure published by National Statistics. Monthly figures are derived

by dividing the quarters by three.

7. Net borrowing is consistent with the definitions in ESA95.Public

sector net borrowing is the Government's preferred measure of the

short term impact of fiscal policy on the economy.

8. General government net borrowing reported in this release forms

the basis of the reports of Government Deficit under the Maastricht

Treaty. The most recent release of government debt & deficit data was

on 27 February 2004. The definition of general government net

borrowing to be reported for the Excessive Deficits Procedure under

the Maastricht Treaty is different to that used for National

Accounts. A regulation requires that payments on Swaps are treated as

interest payments; for all other purposes, including the national

accounts and the Public Sector Finances First Release, such payments

are shown as financing items, consistent with ESA95.The Government

Debt and Deficit under the Maastricht Treaty First Release now

includes three versions of the deficit. It starts with the deficit

consistent with the definition of net borrowing used in this release,

then shows the effect of the alternative treatment of swaps and

finally shows an alternative treatment of the government 's receipts

for allowing the use of spectrum by third generation mobile phone

companies.UK interpretation of ESA95 is that these receipts should be

treated as rents, which is the treatment used in the preparation of

the Public Sector Finances First Release. Eurostat requires that for

the Excessive Deficits Procedure, they be reported as being for the

sale of assets; cash receipts of£22.5 billion were paid to

government by the mobile phone companies during the second and third

quarters of 2000.These are treated in Public Sector Finances as

pre-Public Sector Finances as pre-Public Sector Finances payments of

rent at the rate of£1 billion per annum over the life of the

licences. For more detail please refer to the PSA homepage under


9. As detailed in the 20 July Public Sector Finances First Release,

the Public Sector Finances First Release, the Public Sector Finances

Public Sector Finances have a new revisions policy that allows all

periods to be Sector Finances have a new revisions policy that allows

all periods to be Sector Finances open for comprehensive revision. As

a result of this the quarterly Public Sector Accounts First Release,

which was published with national accounts Sector Accounts First

Release, which was published with national accounts Sector Accounts

about 12 weeks after the end of the latest quarter reported is no

longer necessary and has been discontinued.

10. The national accounts methodology for the new tax credits

introduced in April 2003,was announced in April 2002. It is described

in PSCC decisions

- Classification of Tax Credits available at .

>From their introduction, the new tax credits (Working Tax Credit and

Child Tax Credit)will count either as negative tax (e.g. a deduction

from income tax)for amounts within the tax liability of the recipient

or as a benefit (current expenditure)for amounts that exceed the

recipient's tax liability. Hitherto, tax credits (then the Working

Families 'Tax Credit and Disabled Person's Tax Credit)were treated

entirely as benefits and this treatment is unchanged in the main

National Accounts based fiscal measures. The main effect of this

change will be a reduction in both current expenditure (net social

benefits)and current receipts (accrued income tax)by the amount of

the tax deduction. The effect on fiscal aggregates, such as the

public sector surplus on current budget and public sector net

borrowing, is neutral because the effect on receipts and expenditure

nets out.

11. The monthly estimates of the split of receipts between Compulsory

social contributions and Income and capital gains tax are

provisional. Estimates are used for apportioning certain PAYE

payments during the fiscal year between income tax and national

insurance contributions. When employers ' end-of-year tax returns are

received and processed, compensating adjustments can be made'.

12. The Budget ,(published by HM Treasury 17 March 2004)gave the

following forecasts for the financial year 2004/2005:-

- public sector surplus on current budget: minus£10.5 billion

- public sector net borrowing:£32.9 billion,

- public sector net debt:34.4 per cent of GDP at end March 2005

Table C23 in the Budget Report 2004 gives a forecast of the

components of net borrowing and the current budget, using the same

ESA95 concepts and definitions as in this First Release.

13. Data underlying the graphs in the First Release are available on


14. One indication of the reliability of the key indicators in this

release can be obtained by monitoring the size of revisions. The

table below (see ONS website for detail) is designed to show the size

and pattern of revisions from first publication to one year later.

The ONS standard presentation is to show the average of five years

worth of revisions (e.g. sixty monthly observations). However, as

there are less than five years worth of observations for these key

series, the analysis is based from when each monthly time series

began. The latest observations in this table are for the June 2003

first estimates, the revision to the July 2003 first estimate is

excluded from the table. Please note that these indicators only

report summary measures for revisions, the revised data may still be

subject to measurement error.

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