New measure of public sector borrowing
The Government has provided details of its Fiscal Consolidation Plan, requiring reductions in the budget deficit. It will assess the deficit using a measure of public sector net borrowing (PSNB) that excludes temporary effects from financial interventions.
Issue date: 09 December 2009
Type: Statement
In today's Pre-Budget Report the Government provided details about its Fiscal Consolidation Plan, requiring reductions in the budget deficit. The Government also set out in the PBR that it will assess the deficit using a measure of public sector net borrowing (PSNB) that excludes temporary effects from financial interventions.
This measure PSNB ex, will henceforward be published in the monthly Public Sector Finances Statistical Bulletin, to allow progress against this yardstick to be monitored.
PSNB ex is based on, and consistent with, National Accounts definitions and methodology both in terms of the transactions that feed into its calculation and the institutions between which these transactions take place. The transactions that count in PSNB ex are those between the government and the public sector banks (excluding the Bank of England); between the government and the Bank of England Asset Purchase Facility Fund (BEAPFF); and government transactions with the Bank under the Special Liquidity Scheme (SLS) (see attached diagram). In practice, this means that the measure includes:
a) flows between central government and the banks, the BEAPFF and the SLS, such as fees and losses relating to the interventions;
b) any fee income or loss payments between the Government and RBS under the Asset Protection Scheme;
c) fees paid by banks to Government under the Credit Guarantee Scheme;
d) capital grants by Government to cover any ultimately uncovered depositors’ losses with the Icelandic banks;
e) capital grants by Government for deposits in excess of the amount covered by the Financial Services Compensation Scheme in respect of Bradford & Bingley;
f) the impact of purchasing equity in public sector banks at above market prices;
g) interest receipts on loans to the public sector banks, as these serve to offset the impact on government borrowing of the additional interest paid on the central government debt incurred by the intervention.
The main item that will be included in Public Sector Net Borrowing (PSNB) but excluded from PSNB ex is the National Accounts measure of the profits of RBS and Lloyds Banking Group.
In 2008/09, PSNB ex was £95.4 billion, equivalent to 6.8 per cent of GDP, as compared with PSNB of £84.7 billion, for the same period.
The permanent effects included in PSNB ex should, in principle, be the same as those covered by public sector net debt excluding financial interventions (PSND ex) which has formed part of the Government’s fiscal policy since 2008. As a result, the transactions covered by PSND ex have now been revised to include (e) and (f) listed above which had previously been excluded on the grounds that they netted out within the public sector. The effect of including these transactions is to increase PSND ex by £10.7 billion at March 2009 to stand at £618.8 billion, equivalent to 43.9 per cent of GDP.
