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PUBLIC SECTOR FINANCES NOVEMBER 2003

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

the public sector had:

- a current budget deficit of £4.3bn

- net borrowing of £5.5bn; and at the end of November:

- net debt was £360.7bn, equivalent to 32.2 per cent of gross

domestic product

Main Statistics

The main statistics released show, that in November 2003:

- the public sector current budget was in deficit by £4.3bn;

this is £2.2bn lower than in November 2002,when there was a

deficit of £6.4bn;

- public sector net borrowing was £5.5bn; this is £1.4bn

lower net borrowing than in November 2002,when net borrowing was

£7.0bn;

- the public sector net cash requirement (see table PSF4)was £5.8

bn,a £0.8bn lower net cash requirement than in November

2002,when there was a net cash requirement of £6.6bn. NB

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, statistics;

- at the end of November 2003 public sector net debt was £360.7bn (equivalent to 32.2 per cent of GDP).This compares to £324.2bn (30.4 %) as at the end of November 2002.

Cumulative financial year to date (April 2003 - November 2003))

positions:

In the 2003/04 financial year to date:

- the public sector current budget was in deficit by £20.2bn;

this is £7.0bn higher than in the same period of 2002/03,when

there was a deficit of £13.2bn;

public sector net borrowing was £28.7bn; this was £11.1bn

higher net borrowing than in the same period of 2002/03,when there

was net borrowing of £17.7bn;

- the public sector net cash requirement (see table PSF7)was £26.3

bn; a £14.4bn higher net cash requirement when compared

with the same period of 2002/03,when there was a net cash

requirement of £11.9bn.

Revisions since last data release

The last public finance statistics were published on 20 November

2003.

The period from July 2003 has been open to comprehensive revision in

this release. ONS revisions ' policy prevents revision to earlier

quarterly accrued measures (net borrowing, current budget, net

investment)at this time, although the monthly profile of these

quarters may be revised. Therefore, quarterly data for 2003Q2 and

earlier have not been revised.

There are also some minor revisions to Public sector net debt as a

percentage of GDP between February 2003 and March 2003.

Table PSF8R presents revisions to key aggregates.

The largest revisions are for October 2003.Public sector current

budget has been revised from a surplus of £1.8 billion to a deficit

of -£0.3 billion; and Public sector Net Borrowing has been revised

from -£0.3 billion to £1.6 billion. The revisions are due to new data

on accruals of central government expenditure.

The largest revisions normally occur in the month following first

release, when estimated and provisional data are replaced with firmer

information.

BACKGROUND NOTES

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

from http://

www.statistics.gov.ukdownloadstheme_otherGSSMethodology_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:

Year Public sector current

budget %of GDP

1999/2000 2.1

2000/2001 2.1

2001/2002 0.9

2002/2003 -1.1

The Pre-Budget Report 2003 (published by HM Treasury on 10 December

2003), which projected that the current cycle would end in

2005/06,gave the following

forecasts:2003/04,-1.7%;2004/05,-0.7%;2005/06,-0.4%

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

surplus of £16.6 billion.

3.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 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 ava ilable, 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 estimateof 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 revaluations 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 publi c sector net debt excluding 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 29 August 2003. 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 asinterest

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-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

Articles www.statistics.gov.uk/psa/

9.The non-financial accounts for each of the three sectors shown here

are available quarterly. These appear in the quarterly Public Sector

Accounts First Release, which is published with national accounts

about 12 weeks after the end of the latest quarter reported. The

release of Public Sector Accounts data leads to revisions of the data

published in Public Sector Finances. Monthly versions of the revised

data, consistent with the quarterly Public Sector Accounts First

Release ,are released electronically as soon as is possible, often at

the same time as the Public Sector Accounts First Release. They are

also published in Financial Statistics early in the following month

.The next Public Sector Accounts will be published on 23 December

2003 .

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

www..statistics.gov.uk .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 (c urrent

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.In July 2003 the ONS announced that NHS Trusts were being

reclassified from public corporations to central government. More

details are available from the National Statistics website at

http://www.statistics.gov.uk/ nhsfoundationtrusts The

reclassification will be implemented into National Accounts in June

2004 and hence be included in this release in July 2004. For the

purposes of the Excessive Deficit 's Procedure it has already been

implemented. More information on this can be found in the Government

Deficit and Debt under the Maastricht Treaty First Release at

http://www.statistics.gov.uk/Statbase/Product.asp?vlnk=3766.

12.The Pre-Budget Report ,(published by HM Treasury 10 December 2003)

gave the following forecasts for the financial year 2003/2004:-

-public sector surplus on current budget: minus £19.3 billion

-public sector net borrowing:£37.4 billion,

-public sector net debt:32.8 per cent of GDP at end March 2004

Table B22 in the Pre-Budget Report 2003 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.

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

request.

14.The complete run of data in the tables of this First Release are

also available to view and download in other electronic formats free

of charge using the ONS Time Series Data website service. Users can

download the complete release in a choice of zipped formats, or view

and download their own selections of individual series. The Time

Series Data service can be accessed at

http://www.statistics.gov.uk/timeseries

15.Details of the policy governing the release of new data are

available from the National Statistics press office. Special

arrangements apply to the public sector finances, which is a joint

release with HM Treasury. Its Public Sector Finances (PSF)team

working on the data have access to them at all stages, and certain

other individuals in HM Treasury may have access to them earlier than

would be the case with most National Statistics releases. A list of

those outside the ONS and the PSF team with prepublication access to

the contents of this release is available on request.

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