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Wider Measures of Public Sector Net Debt, December 2011

Released: 16 December 2011 Download PDF

Abstract

Building upon earlier ONS work, this article discusses UK public sector assets, liabilities and obligations. Developments in reporting the public sector’s liabilities and obligations are outlined – including those relating to the National Accounts, the fiscal measures and the published accounts of UK public sector bodies. As in previous ONS articles on this subject, indicative quantifications, using currently available published figures, are presented for public sector assets, obligations and net worth. Developments such as the creation of the Office for Budget Responsibility (OBR), the publication of the first UK Whole of Government Accounts (WGA) and their implications for future work are discussed.

A broader picture of the public sector balance sheet

Introduction and background

ONS has published a range of articles relating to the public sector balance sheet in recent years. These articles include O’ Donoghue (2009) (reference 1), which clarified what was then included within the public sector balance sheet and described the composition of Public Sector Net Debt (PSND), and Maitland-Smith (2009) (reference 2), which discussed what was beyond the boundary of PSND at the time. Later ONS articles, including Hobbs (2010a) (reference 3) and Hobbs (2010b) (reference 4), described a number of developments that occurred up to autumn 2010.

Since then, two major developments in public sector reporting have occurred – the first being the publication of audited ‘Whole of government accounts’ (WGA), 29 November 2011 (reference 5). The second major development has been the setting up of the independent Office for Budgetary Responsibility (OBR) in 2010 and the publication of its Fiscal Sustainability Report.

The publications above have provided a wide range of valuable information useful for the purpose of analysing the state of the UK public sector’s finances.

The Public Sector Finances Statistical Bulletin , published jointly by ONS and HM Treasury, continues to produce estimates for recognised fiscal measures including Public Sector Net Debt (PSND), Public Sector Net Borrowing (PSNB) and Public Sector Net Current Budget. In the light of the recent financial crisis, these measures have been produced on two bases – including and excluding the temporary impacts of the financial crisis interventions, the latter being known as the ‘ex’ measures.

Previous ONS articles (Hobbs (2010a) and Hobbs (2010b)) outlined the value and limitations of the ‘balance sheet approach’ to assessing the broader financial position of the public sector. In particular, such an approach is valuable in setting out the overall financial position of the public sector in terms of its assets and liabilities but the relatively narrow coverage of liabilities may omit some longer-term obligations such as those relating to pensions.

This article follows the format of its predecessors by supplementing the information found in the Public Sector Finances Statistical Bulletin and in the National Accounts with a collection of data relating to public sector assets and public sector obligations. It sets out a fuller range of liabilities, obligations and assets and indicates how they have changed over time. The article includes coverage of the public sector’s:

  • Financial liabilities,

  • Financial assets,

  • Non-financial assets – both tangible and intangible.

Wider liabilities and obligations, including those relating to: 

  • Public sector pay-as-you-go (PAYG) pensions schemes,

  • State pensions schemes,

  • PFI schemes,

  • Contingencies, provisions and guarantees. 

The Public Sector Net Debt

Estimates of Public Sector Net Debt (PSND), both including and excluding (‘PSND-ex’) the temporary effects of financial sector interventions, are published monthly within the Public Sector Finances: Statistical Bulletin . The derivation and composition of PSND was explained in Hobbs (2010a) which also explained that PSND is a ‘net’ measure only in that it nets out public sector liquid assets which consist mainly of foreign exchange reserves and bank deposits. It cannot therefore be compared directly with other net measures such as public sector net worth as the latter net off a wider range of liabilities.

The ‘ex’ measures of public sector debt and deficit are important in that they are utilised by HM Treasury for planning and by the OBR for forecasting purposes. O’ Donoghue (2010a) (reference 6) explained that the key to calculating the ‘ex’ measures is the identification of whether transactions and balance sheet positions are temporary effects of the financial crisis (that will eventually be reversed) or permanent ones. Such temporary effects are excluded when calculating the ‘ex’ measures, and permanent effects included. Essentially, the designation as temporary of the effects of interventions relating to the public sector banks (Northern Rock, Bradford & Bingley,Lloyds Banking Group and Royal Bank of Scotland) reflects the Government’s intention to return these banks to the private sector.

The most recent bulletin, October 2011 (reference 7), indicates that the PSND-ex measure stood at £966.6 billion at the end of October 2011 (and stood at £2295.3 billion on the inclusive basis). A time series for PSND-ex, is available within Annex A (Table PSF8) of the Public Sector Finances: Statistical Bulletin (reference 8).

Financial Sector Interventions

Section 2 above discussed PSND and the recent focus on the ‘ex’ measures. In order to provide a broader basis for analysing public sector liabilities it is important that statistics are available on PSND on an 'inclusive' basis also. A series of ONS articles (including O’ Donoghue (2009) and O’ Donoghue (2010a)) have explained the new variants of the fiscal measures (i.e. the ‘ex’ measures) and described the impacts of the inclusion of various major banking groups within the UK public sector since 2007.

ONS publishes, within the Public Sector Finances: Statistical Bulletin , PSND on both an ‘ex’ basis and on a basis that includes the impacts of the public sector banks.

Table 1 presents a reconciliation of PSND with the corresponding ‘PSND ex’ figure of £967 billion, as at the end of September 2011 (the last available published reconciliation), as published in the Annexes  to the Public Sector Finances Statistical Bulletin.

Table 1

Reconciliation of PSND and PSND ex as at end of September 2011

PSND 2278.8
Less public sector banking groups 1 1198.2
Less central government interventions
Lending 28.5
Compensation of depositors 25.8
Share purchases 2 65.7
Fees -8.1
Northern Rock capital injections 1.4
Total central government interventions 113.3
PSND ex 967.2
   

Table notes:

  1. Includes Bank of England Schemes

  2. Includes capital grant element of the overall purchase price

    Source: Public Sector Finances Statistical Bulletin

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As mentioned in previous articles, although the inclusion of the public sector banks within the public sector finances causes an increase in the level of reported PSND, this is because PSND focuses on liabilities and takes into account only liquid assets. The annual reports of LBG and RBS for the accounting year ending 31 December 2010 were published earlier this year. The groups’ consolidated balance sheets for 2010 show that both still reported positive net worth, on an IFRS basis, LBG having assets of £992 billion and external liabilities of £945 billion and RBS having assets of £1454 billion and external liabilities of £1377 billion.

Public Sector Liabilities and Assets included within the National Accounts

Whereas fiscal measures tend to concentrate on levels of public sector, or government, debt or borrowing, another measure - public sector net worth - is calculated in the National Accounts and published annually in the Blue Book. Public sector net worth, defined as the difference between total public sector assets and liabilities, gives an indication of the overall stock of net assets (or liabilities) held by the sector. It differs from debt measures such as PSND which include most liabilities but only the liquid assets. It should also be noted that, within the national accounts, public financial corporations – such as the publicly controlled banks - are by convention included within the financial corporations sector rather than within the general government sector.

The sections below give details of public sector liabilities, assets (both financial and non-financial), and the difference between them - net worth.

Public sector financial liabilities

The UK National Accounts Blue Book , Tables 3.2.9 and 5.1.9, and the related time series data available on the ONS website, provide estimates of the financial liabilities of the public non-financial corporations (PC) and general government sectors, respectively. These are summarised in Table 2(see data section).

It can be seen in Table 2 that general government total liabilities rose particularly sharply in the years 2008 to 2010 and that the majority of this increase was in the level of general government medium-term and long-term bonds. These increases reflect the impact of the funding, via government bonds, of the government’s rising budget deficit in recent years.

Public sector financial assets

The assets of the public sector consist of both financial and non-financial assets. The UK National Accounts Blue Book , Tables 3.2.9 and 5.1.9, and the related time series data available on the ONS website, also provide estimates of the financial assets of the public non-financial corporations and general government sectors respectively. These are summarised in Table 3 (see data section).

It can be seen in Table 3 that general government’s holding of shares and other equities rose sharply from 2007 to 2009. This is mainly explained by government’s acquiring shares in UK banks as part of the financial crisis interventions.

Public sector non-financial assets

The UK National Accounts Blue Book , Tables 10.4 and 10.7, and the related time series data available on the ONS website, provide analyses of the non-financial assets of the public non-financial corporations and general government sectors respectively. These non-financial assets consist of two types – tangible (that is physical) such as buildings, civil engineering works, and stocks (inventories) and intangible (non-physical) assets, for example own account software and mineral exploration. These are summarised in Table 4 (see data section).

Net worth of the public sector

As explained earlier, net worth is an indication of the total net assets (or liabilities) of an entity. Table 5 (see data section) aggregates the data on public sector liabilities and assets included within Tables 2, 3, and 4 above, to give public sector net worth. This data is published in Tables 10.4 and 10.7 of the UK National Accounts Blue Book for the public non-financial corporations and general government sectors respectively, in Table 10.11 for the public sector as a whole, and in the related time series data available on the ONS website. 

Previous articles have drawn attention to the public sector’s having had a positive net worth although this has fallen sharply during 2008 and 2009. The latest statistics presented in the 2011 Blue Book indicate that public sector net worth, on a national accounts basis, fell to become approximately zero by the end of 2010. As identified above, the largest single cause of the fall in public sector net worth from the end-2009 level of £145.3 billion was the increased level of general government liabilities, in particular medium and long-term bond debt.

Pension Liabilities and Commitments

The sections above summarise ONS statistics on the public sector’s financial position. The sections below provide further information on a range of obligations which are not included within official statistics but on which improved information has become available recently, for example from the Whole of Government Accounts. One such set of obligations is that relating to public sector and state pensions.

UK public sector pension obligations include those relating to:

  • Liabilities of unfunded, pay-as-you-go ( PAYG) public employee schemes including those for   teachers, NHS employees, civil servants, members of the armed forces, the police and fire-fighters.

  • Liabilities of funded public sector schemes, the largest being the Local Government Pension  cheme (LGPS) for local authority employees.

  • Obligations relating to the state pension schemes.

A new supplementary table on pensions to accompany the core national accounts (see below) will include pension obligations for which the general government sector is the ‘manager’. These include Crown Guarantee Schemes, where general government is legally responsible for the obligations.

Unfunded public service pension obligations

Hobbs (2010a) described a number of official and unofficial estimates of pensions obligations available at that time. The ONS publication Pension Trends (reference 9) has in recent years published, in its Chapter 14, details of the liabilities of unfunded public employee pension schemes, based on the schemes’ annual resource accounts, Table 6 provides details of these figures, for periods up to 31 March 2010.

The WGA for 2009-10 provide figures for unfunded public employee schemes as at 31 March 2009 and 2010. These, along with the estimates by type of scheme provided in Pensions Trends Table 14.7 (last updated April 2011) have been used to update the figures provided in Hobbs (2010a). Table 6 shows that these liabilities have risen sharply in 2010. As Pensions Trends explains, the estimates of these liabilities change each year, mainly because of the use of a variable (market-based) discount rate. Such estimates are very sensitive to changes in financial assumptions, in particular the discount rate.

Table 6

Liabilities of the unfunded public service pension schemes (£billion)

 
United Kingdom
           
  2006 2007 2008 2009 2010
   
Total Liabilities' 650 810 770 735 1016
Of which:  
National Health Service (UK) 188 249 243 228 329
   
Teachers (UK) 164 208 204 194 258
   
Civil service (Great Britain) 101 129 119 116 153
   
Armed Forces 76 101 97 91 121

Table notes:

  1. Liabilities as at 31 March

  2. Total liabilities include those of the police and fire-fighters pension schemes and of a number of smaller unfunded public service schemes, as well as those of the four largest schemes shown in this table.

    Source: Pension Trends and WGA 2009-10

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Funded public service pension obligations

The liabilities figures in Table 6 are only for unfunded pensions for public sector employees. They do not include the public sector funded schemes, the largest of which is the Local Government Pensions Scheme (LGPS).

Pensions Trends Chapter 14 (April 2011, page 14-7) indicated that the latest available estimates indicated that the LGPS had, at 31 March 2007, assets of £132 billion and liabilities of £159 billion (i.e. a net liability of £27 billion). Other, unofficial, publications have questioned these official estimates, some recent examples of which were provided in Hobbs (2010a).

A new supplementary table on pensions

As mentioned earlier, ONS has started work on providing a range of information relating to pensions obligations. A new supplementary table on pensions, to accompany the core National Accounts from 2014, will include a range of information on pension scheme obligations for both the public and private sectors. As part of this work, ONS will be publishing, in 2012, updated estimates of the actuarial obligations of pension schemes for which government is the pension ‘manager’, These are mainly public sector schemes and include public employee schemes – both funded and unfunded – and the state pension schemes.

The experimental statistics within the 2010 pensions supplementary table will cover the estimated gross liabilities of pension schemes included in ‘social insurance’, as defined by the international System of National Accounts (SNA) – that is workplace pension schemes and state pensions accrued through National Insurance contributions. It will not include individual personal pensions as they are not considered part of social insurance; nor will it include social assistance (for example Pension Credit), or health or long-term care insurance or individual insurance policies. However, it will show the liabilities of all pension schemes managed by the Government, covering unfunded public service pensions for public sector employees, unfunded state pensions, funded pensions for public sector employees and others where government is liable.

Two recent ONS articles (see Levy (2011a – see reference 10) and Levy (2011b - reference 11)) describe the methodology and data sources utilised in developing the pensions statistics for the new supplementary table. The first article draws attention to the difficulties involved in providing a single figure estimate for pension obligations, including obtaining suitable data, the necessary assumptions about mortality, earnings growth etc, and the choice of suitable discount rates. Levy (2011a) also provides (see Box 4 of that article) an explanation of the differences between the approach taken for the purposes of the supplementary table and that used within the Whole of Government Accounts.

Unfunded state pension obligations

Hobbs (2010a) provided details of official HMRC estimates of state pension obligations: Pension Trends Chapter 14: ‘Pensions in the National Accounts’ indicated (April 2011) that, as at 31 March 2005, these obligations had risen to £1.35 trillion. The state pension scheme (providing the basic and additional state pensions) is classified as a social security scheme and the pensions it pays are classified as social benefits in the National Accounts, the benefits being paid on a pay-as-you-go (PAYG) basis from the National Insurance Fund.

As such, these obligations do not constitute a ‘liability’ in the financial reporting sense and so are not included as a liability within the WGA. Consequently, the estimates of state pension obligations that will be provided in the ONS supplementary table will be the first official estimates of such obligations since 2005.

WGA Information Relevant to the Public Sector Balance Sheet

6.1 Private finance initiative and other leases

Private finance initiative (PFI) contracts – and the broader public-private partnership (PPP) schemes - have been a recurring issue in the debate on public sector liabilities. Chesson and Maitland-Smith (2006-reference 12), Kellaway (2008-reference 13) and Maitland-Smith (2009) described developments in the inclusion of PFI liabilities within the UK Public Sector Finances (PSF) and the National Accounts.

Hobbs (2010a) described the recent history, and challenges, of PFI reporting and reported that the latest published figures, on a national accounts basis, for the UK public sector’s finance lease liabilities, including those relating to on-balance sheet PFIs, was around £5 billion at the end of December 2009. The latest published figures on a national accounts basis remain at around £5 billion.

These figures are small relative to those for other liabilities, obligations and assets discussed elsewhere in this article. However, the rules on reporting for PFI contracts differ between the National Accounts and Public Sector Finances, which are based on ESA95, and departmental resource accounts and the WGA, which are based on International Financial Reporting Standards (IFRS).

As explained in Hobbs (2010a), the IFRS accounting basis determines the balance sheet treatment of a PFI by considering which party effectively controls the contract whereas the ESA95 basis focuses on who bears the risks and rewards of the contract. The result is that, under the IFRS basis, many more PFIs are reported on the public sector balance sheet. For illustration, most PFIs involving local authorities – for example PFI schools - and many health-related PFIs such as hospitals are treated as ‘off-balance sheet’ under national accounts rules but as ‘on-balance sheet’ under IFRS rules. There is therefore a marked difference in the PFI liabilities figures published under the two accounting bases.

The WGA 2009-10 indicate that, at 31 March 2010, under the IFRS basis, public sector PFI obligations stood at £34.1 billion, of which £28.1 billion related to the present value of capital amounts payable. The net book value of the corresponding PFI infrastructure assets stood at £30.9 billion at the same date.

Hobbs (2010a) presented a range of figures sourced from published HM Treasury PFI data (as at February 2010). This data estimated that PFIs existing at that time would result in future unitary payments of over £220 billion on an undiscounted basis. At that time, the data also indicated a total estimated capital value of all PFI contracts of around £56 billion.

The data provided within the WGA 2009-10 present, for the first time, discounted (i.e. present value) figures for PFI obligations. PFI unitary charges (lease payments) comprise the repayment of capital, finance charges and service payments. The PFI liability at a given point comprises the liability to repay future capital amounts and any finance charges accrued to date. This ‘net present value of future obligations’ was, as can be seen in Table 7, £34.1 billion at 31 March 2010.

In addition to the existing liability at a certain point, the public sector PFI client also has an obligation, under the terms of the PFI contract, to pay future finance charges and service charges. These items are not yet liabilities in an accounting sense. In the case of future finance charges, the charges have not yet been accrued and, in the case of future service charges, there exists an ‘executory contract’ in that the services have not yet been performed and so no liability to recompense the contractor yet exists. The WGA data in Table 7 indicate that total future PFI obligations at 31 March 2010 were £131.5 billion. These data, presented on a present value basis, were unavailable from official sources prior to the publication of WGA 2009-10.

Table 7

PFI obligations for future periods - as at 31 March 2010

  £ billion Number of PFI Contracts
Obligations for future periods arise in the following periods:  
No later than one year 3.1  
Later than one year and not later than five years 12.7  
Later than 5 years 51.7  
Gross present value of future obligations 67.5  
Less finance charges allocated to future periods (33.4)  
Net present value of future obligations 34.1  
Plus service charges due in future periods 97.4  
Total future obligations 131.5 609
   
     
Analysis of PFI Contracts by entity Gross present value £ billion Number of PFI contracts
Central government  14.4 243
Entities within the NHS 20.4 129
Sub-total of central government departments 34.8 372
Local authorities 31.8 226
Public corporations 0.9 11
Total 67.5 609
     

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6.2 Balance sheet assets, liabilities and net worth

The WGA balance sheet (i.e. consolidated statement of financial position) at 31 March 2010 included total assets of £1,207 billion, total external liabilities of £2,419 billion and, consequently, a net liability (effectively a negative public sector net worth on a WGA basis) of £1,212 billion.

Naturally, for the purposes of the WGA, these figures were produced on an IFRS basis. They therefore differ from those figures contained (on a National Accounts basis) within the corresponding National Accounts and Public Sector Finances statistics. Addressing these differences, the WGA 2009-10 provide (pp 24 – 28) a reconciliation of the main differences between the National accounts and WGA as regards two key fiscal measures: Public Sector Net Debt (PSND) and Current Deficit.

The reconciliation relating to PSND is reproduced in Table 8 below. Further explanation of the nature the differences contained within this reconciliation is provided within Daffin and Hobbs (2010) (reference 14).

Table 8:

High-level reconciliation of public sector net debt with WGA net liabilities, as of 31 March 2010

    £ billion £ billion
Net liabilities (WGA)   1,212
Net public pension liabilities   (1,132)
Provisions    
Nuclear decommissioning (57)  
Clinical negligence (16)  
Other (29)  
    (102)
Unamortised premium or discount on gilts   (16)
Tangible and intangible fixed assets   759
Payables and receivables   40
Investments   16
Other   6
Public sector net debt (National Accounts)   760

Table notes:

  1. Source: WGA 2009-10

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6.3 Contingencies, provisions, guarantees and other obligations

The reconciliation presented in Table 8 compares PSND with net liabilities included on the WGA balance sheet. In addition to such on-balance sheet liabilities, there exists a range of other potential obligations which, owing to the uncertainty of their realisation or to the difficulty of their estimation, are not included within the WGA balance sheet.

Hobbs (2010a, Table 11) provided an analysis, based on a range of published data sources available at the time, of public sector obligations and contingencies that were not included in official figures such as the National Accounts and Public Sector Finances at the end of 2009. These figures, produced as part of ONS data supplied under the Maastricht Excessive Deficit Procedure, provided aggregated data on contingent liabilities related only to the financial crisis. These figures included some active government guarantees and liquidity schemes, as noted in Hobbs (2010), and were estimated to total £543 billion at the end of 2009.

With the publication, in November 2011, of the UK Whole of Government Accounts, an expanded range of official, audited information on contingent obligations, guarantees etc has become available. This new information covers all WGA contingent liabilities, not just those relating to the financial crisis. Such information may vary considerably over time, depending on the information available, as new contingent obligations emerge, and as the estimated impact and certainty of previously identified contingencies are reconsidered and re-evaluated.

As explained in earlier ONS articles, the National Accounts based statistics do not, by convention, include contingent obligations or provisions. Information on such matters is, however, important in forming a broader view of the public sector balance sheet.  A summary of such information, provided within the WGA is provided below.

Note 32 of the 2009-10 WGA explains that a number of public sector entities were party to non-cancellable contracts that were not finance leases or PFI contracts. Such contracts are executory in nature and are thus not included as liabilities within the WGA balance sheet. Such contractual commitments included, for example, franchise agreements with train operating companies, new equity/loans etc relating to Northern Rock and Bradford and Bingley, grants payable to colleges and schools, etc. In total, as of 31 March 2010, such commitments stood at £63.4 billion, £55.3 billion of which related to central government commitments.

Note 33 of the WGA 2009-10, gives details of public sector contingent liabilities (there is also an immaterial amount – around £0.7 billion – of public sector contingent assets, details of which are available within departments’ resource accounts). Naturally, some contingent liabilities are more remote and/or less quantifiable than others. The WGA therefore categorises such liabilities/obligations accordingly. Details provided of contingent liabilities in the WGA 2009-10 are summarised in Tables 9, 10 and 11.

Table 9

Quantifiable public sector contingent liabilities, as at 31 March 2010

Contingent liability Details Potential liability   (£ billion)
Financial stability intervention: Special Liquidity Scheme HM Treasury indemnification of Bank of England. Payment would only arise if capital losses exceed an surplus accruing to the Bank over the duration of the scheme. 165.0
Financial stability invention: RBS Contingent capital made available by HM Treasury to Royal Bank of Scotland) RBS. No contingent capital had been drawn down by 31 March 2010. 8.0
Financial stability intervention: Northern Rock HM Treasury commitment to ensure that Northern Rock (Asset Management) plc will continue to operate above minimum regulatory capital requirements. 1.7
Export guarantees and insurance policies ECGD guarantees and insurance policies supporting exports and investments. 9.0
Clinical negligence Relating to public sector bodies' being the actual or potential defendant in actions regarding alleged clinical negligence. 7.5
Legal proceedings against HMRC HMRC is engaged in legal proceedings with taxpayers across a range of cases; including some where reference to the European Court of Justice may be required. 5.5
Supporting international organisations  DfiD potential liabilities regarding contributions it expects to pay to international organisations, which have been subject to approval by Parliament but which are not yet supported either by promissory notes or cash payments. 1.9
Other   7.8
Total quantifiable contingent liabilities   206.4

Table notes:

  1. Source: WGA 2009-10

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In addition to the contingent liabilities in Table 9, the WGA 2009-10 notes that there existed a range of other quantifiable contingent liabilities, at 31 March 2010, though these were not individually material to the WGA. Details of these are available within individual resource accounts.

The WGA 2009-10 also give details of a range of unquantifiable contingent liabilities as at 31 March 2010. No values, by definition, are available of such contingent liabilities but the most material ones are listed below. WGA gives further details of these, and these are summarised in Table 10 below.

Table 10

Unquantifiable public sector contingent liabilities, as at 31 March 2010

Contingent liability Nature
Legal claims Various legal claims, compensation claims and tribunal cases against public sector entities
Commitments in relation to pension scheme deficits Commitments made to provide funding should schemes' deficits require funding
Indemnities in relation to financial stability interventions Includes HM Treasury guarantees relating to Northern Rock, plc, Northern Rock (Asset Management) plc, Bradford and Bingley, Deposit Management (Heritable) Limited, Infrastructure Finance Unit Limited, and United Kingdom Financial Investments.
Compensation schemes Relating to Northern Rock plc and Bradford & Bingley plc
Equitable life Relating to Government undertaking to establish a fair ex-gratia payment scheme to Equitable Life policyholders who have suffered maladministration
Contingent liabilities for reinsurance arsing from acts of terrorism HM Treasury contingent liabilities relating to Pool Re and Pool Re (Nuclear) insurance of industrial and commercial property damage and consequential business interruption arising from terrorist attacks.
Financial Assistance Scheme Relating to the Government's December 2007 announced intention for the FAS to take over payments of some fully funded private sector pensions and associated benefits in qualifying schemes (and to take the assets of those pensions schemes into Government.
Crown guarantee to protect BT's pension liabilities Relating to Government guarantees to protect employee pensions when BT privatised in1984.
Contingent liabilities arising from rail franchising agreement Guarantees given by the Strategic Rail Authority, and novated to the Department of Transport (DfT), in relation to new, replacement and extended rail franchise agreements.
Contingent liability in relation to the Channel Tunnel DfT statutory liability, under the Channel Tunnel Act 1987, to ensure that if, after the termination of the Channel Tunnel concession, it appears to the Secretary of State that the operation of the Tunnel will not be resumed in the near future, and land is left in a suitable condition in accordance with the scheme.
Tenancy Deposit Protection Service DCLG potential liability relating to the contract with the Deposit Protection Service to operate the Tenancy Deposit Protection custodial scheme.
Levy on imported sea fish and sea fish products DEFRA liability relating to a Court of Appeal ruling in 2010 that Seafish (a levy-funded UK-wide Non-Departmental Public Body) must repay the levy to appellants.
Service Life Assurance Relates to life assurance for MoD service personnel, access to which is provided by Government.

Table notes:

  1. Source: WGA 2009-10, Note 33.3

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Finally, the 2009-10 WGA provide details of further, remote public sector contingent liabilities. Government departments report such remote contingent liabilities to Parliament even though such contingent liabilities are too remote to fall within the IFRS (IAS37) disclosure requirements. WGA 2009-10 reports that the total value of such remote contingent liabilities amounted, at 31 March 2010, to £636.2 billion.

Details of material contingent liabilities included in this total are provided in Table 11.

Table 11

Remote public sector contingent liabilities, as at 31 March 2010

Remote contingent liability Details £ billion
Guarantees:    
Credit Guarantee Scheme Government guarantee for new short and medium term debt issuance to eligible institutions.  The Scheme closed to new issuance on 28 February 2010. 125.0
Bank of England Issue Department National Loans Fund remote contingent liability to the Bank of England Issue Department that part of the assets backing notes in circulation not represented by government securities. 45.6
European Investment Banks - callable capital subscriptions Relates to amounts callable from Member States relating to the increases in the EIB's subscribed capital in April 2009. 31.9
Financial guarantees issued to certain depositors with public sector banks HM Treasury guarantees to guarantee certain wholesale borrowings, deposits, derivative transactions etc relating to Bradford & Bingley, Northern Rock (Asset Management)plc and Northern Rock plc. 29.8
Department for International Development Relating to DfID's remote contingent liability in respect of callable capital on investments in International Financial Institutions. 9.2
Coins that are returned from Circulation The Consolidated Fund's remote contingent liability in respect of returned coins. 3.9
Loans to EU Member States and Third Counties Relating to the UK's maximum labiality from current outstanding loans to EU Member States and Third Countries.  Such loans are guaranteed by the EU Budget and the liability will only crystallise if loans are defaulted upon. 2.8
Indemnities:    
Bank of England Asset Purchase Facility Relating to HM Treasury's indemnifying the Bank of England and its purpose-built fund from any losses arising out of, or in connection with, the facility. 200.0
Asset Protection Scheme  Relating to HM Treasury's estimated maximum exposure to the scheme as at 31 March 2010 153.8
Network Rail Debt Issuance Programme Relates to the DfT's provision of a financial indemnity in support of Network Rail's Issuance Programme 23.8
Government Indemnity Scheme Relates to the Scheme's indemnifying private lenders to enable museums, art galleries etc to borrow objects and artworks when mounting exhibitions or taking long-term loans for study or display.  Also includes DCLG's non- statutory liabilities for indemnities granted in respect of works of art on loan from the Royal Collection, and for items on loan to the Government Art Collection. 6.6
PFI arrangements Department for Education indemnity to local authorities for potential costs of buildings they own, with existing PFI arrangements which will be used by the Academies. Only arise where an academy is using a local authority building with an existing PFI contract. 2.4
Letters of comfort:    
Standby credit facility for Network Rail Relates to a DfT standby credit facility for Network Rail, to act as a long-term contingency buffer.  This had not been used as at 31 Match 2010. 4.0

Table notes:

  1. Source: WGA 2009-10, Note 33.3

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The WGA 2009-10 (34.2) also give details of a range of further non-quantifiable remote contingent liabilities. Given their nature, they are not included here.

Conclusion

As discussed in Hobbs (2010a), public sector obligations fall into a spectrum ranging from clearly measurable and time-bound liabilities through to remote and unquantifiable contingent obligations. The former will generally be included within balance sheets; the latter rarely. Where a specific obligation falls on this spectrum is often strongly debated and views change over time.

This article has presented a range of data already published across a range of sources – National Accounts, Public Sector Finances, WGA etc – and prepared on various bases and assumptions. As cautioned in previous articles, care should be taken when aggregating or comparing such different data sources and the data provided by this article should be used in this context.

The publication of ONS’s first article on this subject in 2010 was followed by a number of media headlines in which figures on different bases were added together to give a range of different estimates of ‘the real national debt’.

It is stressed that the purpose of this article is not to provide such a ‘single figure’ for the public sector’s indebtedness but, rather, to promote transparency by drawing attention to the broader range of information that is available on the obligations of the UK public sector. For such reasons, a summary of the information provided above is not provided here.

As resources permit, ONS will continue to engage with government and private sector stakeholders and experts to progress and promote the provision of fuller information about the UK public sector balance sheet. ONS will continue to report progress periodically.

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

References

    1. O’ Donoghue J (2009), ‘The public sector balance sheet’, Economic & Labour Market Review, Vol 3, No 7, London, July, 37–42.

    2. Maitland-Smith F (2009), ‘Government financial liabilities beyond public sector net debt’, Economic & Labour Market Review, Vol 3, No 7, London, July, 43–50.

    3. Hobbs (2010a)

    4. Hobbs (2010b) 

    5. Public Spending and Reporting: Government Accounts 

    6. Economic & Labour Review, Vol 3, No 7, London, July, 43–50

    7. Public Sector Finance Reference Tables, 2011  

    8. Pension Trends, Chapter 14: Pensions and the National Accounts (2011 edition)

    9. Levy (2011a)

    10.   Levy (2011b)

    11. Economic Trends (Chesson, Maitland & Smith)

    12. ELMR May 2008 (Kellaway) 

    13. EU Government Debt and Deficit Returns: Comparison of Public Sector Finance Measures 

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