The Treasury has recently announced that it intends to transfer excess cash held in the Bank of England’s Asset Purchase Facility Fund. This has raised issues as to how this transfer will impact on National Accounts and Public Sector Finances.
In order to correctly analyse these there are two Committees that need to agree its treatment
The National Accounts Classification Committee chaired by the Office for National Statistics, which agrees the treatment in the National Accounts and the European "Maastricht" measures of Government debt and deficit
The Public Finance Statistics Technical Advisory Group, which builds on NACC decisions to agree treatment in the Public Sector Finances
These Committees will consider the issue as a matter of priority and announce their conclusions by early January – prior to any transfers from Bank of England to HM Treasury taking place. At this point we will also announce when the transfers will appear in the statistical bulletins and our estimate of the impact.
Since 2009 the Bank of England has largely operated Quantitative Easing (QE) by buying gilts and holding them in a dedicated facility called the Asset Purchase Facility (APF). These gilts attract regular coupon payments from the Exchequer. The Treasury annual report and accounts (July 2012) set out that the APF had accumulated £23.8 billion of excess cash (largely from these coupon repayments). Treasury estimates indicate that the cash held in the APF is expected to increase to around £35 billion by the end of March 2013 (based on the amount of gilts purchased remaining at £375 billion).
On 9 November 2012 the Government agreed with the Bank of England to transfer to the Exchequer the excess cash held in the APF and set up arrangements for an ongoing quarterly transfer. The transfer of the excess cash to the Exchequer will be staggered across 2012-13 and 2013-14. There are two issues that need to be considered in deciding on the impact of this transfer in the relevant statistics published by ONS. The first is how the transaction should be handled in the UK National Accounts; the second is the impact the transfer will have on the public sector finance measures.
The ONS is responsible for compiling the UK National Accounts according to the mandatory European System of Accounts (1995) and the supplementary guidance in the Manual on Government Debt and Deficit. Deciding which institutions and transactions should be included within the public sector and how transactions are recorded in the National Accounts is the responsibility of the ONS. Such decisions are made by the ONS National Accounts Classification Committee.
HM Treasury is responsible for UK fiscal policy, including public sector expenditure, revenue and consequently borrowing and debt, in line with the Government’s objectives. ONS and HM Treasury jointly publish a monthly Public Sector Finances (PSF) statistical bulletin containing statistical measures used for setting and monitoring fiscal policy. This bulletin is published as a National Statistic under the Code of Practice for Official Statistics. ONS is responsible for the statistical content of the PSF bulletin and to ensure the measures follow National Accounts principles.
The financial crisis and consequent economic shocks that hit the UK from 2007-08 led the Government to make exceptional interventions in the financial sector. New concepts for measuring the fiscal position were introduced to the Public Sector Finances bulletin at this time, which are based on National Accounts classifications and provide further measures which are helpful to understanding the fiscal position. These measures exclude any temporary effects of the financial interventions and include their permanent effects, the so-called ex measures; Public Sector Net Debt ex and Public Sector Net Borrowing ex.
Issues in the transition from the National Accounts to the fiscal measures, for example the definition of the ex measures, are decided by the Public Finance Statistics Technical Advisory Group (PFSTAG). This committee includes Government Statistical Service members from HM Treasury, Communities and Local Government, and the Office for National Statistics. This committee will meet to decide how the APF transfers affect the PSF statistics, in particular the Public Sector Net Debt ex and Public Sector Net Borrowing ex measures.
By early January we will announce the classification decision of both Committees together with information on when these will feed through into the official statistics.