1. Challenges of measuring the effects of the coronavirus pandemic on tax receipts

To estimate borrowing, tax receipts are recorded on a national accounts (accrued) basis rather than on a cash receipt basis. In other words, we attempt to record receipts at the point where the liability arose, rather than when the tax is actually paid.

This means that national accounts (or accrued)-based tax receipts for the current period depend on information from both current cash payments and on projections of future tax receipts, which are "accrued" (or time adjusted) back to the current month. For this purpose, we use official forecasts of future cash receipts, produced by the Office for Budget Responsibility (OBR).

Future tax receipts used in our accrued estimates are based on those in the OBR's Coronavirus Reference Scenario published on 14 May 2020. The reference scenario assumes a three-month lockdown period followed by a gradual return to normal over the subsequent three months. It also suggests a significant reduction in future revenues compared with the earlier, official forecast published on 13 March 2020.

Basing forecasts on this scenario is an important improvement to the tax receipts recorded on a national accounts basis (accrued), though they are still highly provisional. The OBR will continue to monitor developments over the coming months and update its estimates as the impact of the coronavirus (COVID-19) becomes clearer.

The Office for National Statistics (ONS) and HM Treasury have been working with both HM Revenue and Customs (HMRC) and the OBR to determine whether there is enough information to make exceptional adjustments that estimate coronavirus effects.

Where data are available, we have adjusted the recording of national accounts-based (accrued) tax receipts for May and earlier periods. These adjustments are described later in this section. These exceptional adjustments, and their underlying assumptions, will be revisited over the coming months as more information becomes available.

Pay As You Earn

Pay As You Earn (PAYE) Income Tax is normally recorded on a national accounts (accrued) basis by time-adjusting cash receipts using a one-month lag, which means that, for example, accrued PAYE receipts for May are based on forecast June cash receipts.

The amount of cash received for PAYE Income Tax in May 2020 was lower than usual, with much of that weakness likely attributable to lower earnings and employment and non-payment of liabilities. May 2020 receipts recorded on a national accounts (accrued) basis are estimated based on the OBR Coronavirus Reference Scenario published on 14 May 2020.

We currently assume that most non-paid tax from April and May 2020 will still be paid, but in a later period than originally expected. We have included a 7% adjustment to reduce expected PAYE receipts on a national accounts basis to account for possible non-payment of PAYE. This assumption is based on the information set out on tax debts and losses in HMRC’s annual report and accounts, and is based on average losses for the most recent three years of data.

Value Added Tax

Value Added Tax (VAT) data for any month are normally recorded on a national accounts (accrued) basis by time-adjusting the average cash receipts expected in the following three months. This means that, for example, VAT receipts on a national accounts (accrued) basis in May depend on forecast cash receipts for June, July and August. These are updated as actual receipts become known.

The government announced a deferral scheme for Value Added Tax payments, enabling UK businesses to pay VAT due between 20 March 2020 and 30 June 2020 at a later date (though before 31 March 2021). As a result, cash VAT receipts are lower than usual in this period.

Our current assumption is that all the deferred tax owed will still be paid, but in a later period than originally expected, as is permitted under the deferral scheme. We have therefore made an exceptional adjustment to prevent the effects of the deferral scheme on VAT receipts from impacting accrued receipts. Receipts forecasts are based on the OBR's Coronavirus Reference Scenario published 14 May 2020, adjusted to account for the impacts of the deferral scheme.

There are not enough data available yet on which to estimate the amount of VAT that will not be paid because of lower economic activity or businesses ceasing to trade.

Corporation Tax

Corporation Tax data for any month are normally recorded on a national accounts (accrued) basis by time-adjusting cash receipts for the subsequent 2 to 21 months, depending on the profits of the company.

As with PAYE and VAT, estimates of future months' cash receipts are now based on the OBR's Coronavirus Reference Scenario published 14 May 2020.

We are not yet able to estimate the amount of Corporation Tax that will not be paid, for example, because of reduced trading activity leading to lower profits, firms deferring tax payments to a future date or firms going out of business altogether. The OBR Coronavirus reference scenario assumes a non-payment rate of 10% and therefore this is our current assumption.

The national accounts estimates of accrued corporation tax rely heavily on forecast cash receipts, however in making these forecasts their remains uncertainty regarding the amount of corporation tax revenue that may never be received. Both cash receipts and accrued receipts should be viewed together for additional context.

Other taxes

The update of HMRC's tax forecast based on the OBR's Coronavirus Reference Scenario published 14 May 2020 has led to improvements in the recording of many taxes recorded on a national accounts (accrued) basis. However, limited information has meant that those taxes not collected by HMRC (such as business rates) are currently likely to be overestimated. Such taxes will be reviewed over the coming months when more information becomes available.

Back to table of contents

2. Coronavirus support schemes

Since the start of the coronavirus (COVID-19) pandemic, the UK government and the Bank of England have announced policies and schemes to support the economy and individuals affected by the pandemic.

National statistics institutes across the world are considering how schemes in each country should be measured in economic statistics, including in public finance statistics. Likewise, international organisations such as the International Monetary Fund, the European Statistical Office (Eurostat) and others are working to produce detailed guidance on the treatment of coronavirus schemes in line with agreed international statistical frameworks.

In this section we explain the Office for National Statistics' (ONS') initial assessments of some of the largest schemes. These assessments are provisional and subject to change in the coming months.

COVID Corporate Financing Facility

The COVID Corporate Financing Facility (CCFF) is a scheme under which the Bank of England, acting for HM Treasury, will buy commercial paper issued by larger, non-financial corporations, in order to help with their cashflow position. This scheme is unlimited in size and will have an initial duration of one year.

The provisional assessment is that this is a central government scheme, and that the commercial paper acquired under the scheme is a liquid asset of central government. This provisional treatment of the CCFF may be revised once official statistical guidance has been published.

Government loan guarantee schemes

To assist businesses in accessing credit at the time of the pandemic, government has set up loan guarantee schemes. Provided through the British Business Bank, a central government organisation, the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme and the Bounce Back Loan Scheme allow businesses to benefit from guarantees extended to their lenders.

Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) are loan guarantee schemes created by the government to support UK businesses that are losing revenue and seeing their cashflow disrupted as a result of coronavirus. Using internationally agreed guidance, we have carried out a formal assessment of these schemes and concluded that the guarantees should be recorded as standardised in nature. We will work further to develop the methodology with the aim of implementing in the public sector finances later in the year.

Payments made by government to cover the costs of interest during the first year (the business interruption payment) are provisionally considered to be subsidies on production.

The Bounce Back Loan Scheme (BBLS) is a scheme designed to enable businesses to access finance more quickly during the coronavirus outbreak. While broadly similar to the earlier CBILS and CLBILS in design, it offers different terms and conditions and has unique features. We are therefore undertaking a formal assessment of the BBLS will reach a formal classification decision in due course.

Back to table of contents

3. New fiscal rules introduced in Budget 2020

In the Budget 2020 report, the government introduced three new fiscal rules:

  • to have the current budget at least in balance by the third year of the rolling five-year forecast period

  • to ensure that public sector net investment does not exceed 3% of gross domestic product (GDP) on average over the rolling five-year forecast period

  • if the debt interest to revenue ratio is forecast to remain over 6% for a sustained period, the government will take action to ensure the debt-to-GDP ratio is falling

We have been publishing the public sector current budget deficit (excluding public sector banks) and public sector net investment (excluding public sector banks) as a ratio of GDP for some time within Public sector finances tables 1 to 10: Appendix A, Tables PSA1 and PSA5A respectively. However, the debt interest to revenue ratio (DIR) was introduced for the first time in March 2020 as an Experimental Statistic and we are working to make improvements where necessary.

The Budget 2020 report defined the debt interest to revenue ratio as "public sector net interest paid (gross interest paid less interest received) as a proportion of non-interest receipts." After consultation with the Office for National Statistics (ONS), HM Treasury has determined that the numerator of this ratio was to be set as the interest paid by the public sector (excluding public sector banks) less the property income received. The corresponding denominator has been set as public sector (excluding public sector banks) current receipts, (again) less the property income received.

A higher (lower) ratio would indicate that a larger (smaller) fraction of revenue is required to service the UK public sector's (excluding public sector banks) financial liabilities.

The DIR has varied considerably over the last seven decades. Until the financial year ending March 1991 the DIR was above 6% every year, reflecting much higher interest rates on government debt than is the case now and, initially, the very high post-war debt-to-GDP ratio. But the DIR fell through most of this period as the high interest rates were usually accompanied by high nominal GDP growth. The ratio was 4.7% in the financial year ending March 2008 ahead of the 2008 economic downturn and has only exceeded 6.0% twice over the decade since.

The ratio is defined on a financial year basis and data for it on a monthly and quarterly basis can be volatile and potentially misleading. We have chosen to present data in the tables on a rolling 12-month basis but even this should be treated with caution as an indicator of the end-financial year position.

The DIR is presented in Table PSA4 of Public sector finances tables 1 to 10: Appendix A of the monthly Public sector finances statistical bulletin. These data are presented as a rolling 12-month ratio such that the value presented in March of each year represent a financial year total.

The DIR also is presented as a memo item in the Public sector finances borrowing by sub-sector presentation. These data are presented as monthly, quarterly, calendar and financial year data.

Back to table of contents

4. Future developments

This section presents information on aspects of data or methodology that are planned but not yet included in the public sector finances.

Developments in public sector finance statistics

On 31 May 2019, we published the second in our series of development articles, Looking ahead -- developments in public sector finance statistics: 2019. In this article, we listed a number of short-term areas of work that we aim to implement in public sector finance statistics within 18 months from the date of this publication. These include:

  • the treatment of student loans (subsequently introduced in September 2019)

  • the presentation of pension data on a gross basis (subsequently introduced in September 2019)

  • the International Monetary Fund's (IMF) Government Finance Statistics Framework (GFSM) (subsequently introduced in October 2019)

  • the treatment of capital consumption, or depreciation (subsequently introduced in September 2019)

  • the continuous development of public sector net financial liabilities (PSNFL)

  • the recording of leases

The article also provides some detail on the areas of planned medium- and longer-term development.

Ongoing developments in public sector finance statistics

This subsection presents information on our current continuous improvement projects and methodological decisions that are planned but not yet included in the public sector finances. Because of recent events and the demands of incorporating the impact of the coronavirus pandemic in the public sector finances, some of these investigations have been deprioritised.

Thomas Cook Group plc

On 23 September 2019, winding-up orders were made against Thomas Cook Group plc and associated companies. The court appointed the Official Receiver as the liquidator. We will announce the implications of this decision on the public finances in due course.


On 15 January 2020, the government provided an update on Flybe and outlined an upcoming review of regional connectivity. As part of this work and ahead of the March Budget, HM Treasury reviewed Air Passenger Duty. We will announce the implications of this decision on the public finances in due course.

Northern Rail

On 29 January 2020, the government announced that from 1 March 2020, the Northern Rail franchise would be taken into public ownership. We will announce the implications of this decision on the public finances in due course.

East Coast Mainline

On 16 May 2018, the government announced that from 24 June 2018, London North Eastern Railway (LNER) would take over the running of East Coast Mainline services. On 31 August 2018, we announced that LNER would be classified to the public non-financial corporations sub-sector, effective from 14 February 2018. We will announce the implications of this decision on the public finances in due course.

Sale of railway arches

On 11 September 2018, Network Rail announced it had agreed terms for the sale of its Commercial Estate business in England and Wales. On 4 February 2019, the National Audit Office confirmed that Network Rail had completed a £1.46 billion sale of its commercial property portfolio consisting of approximately 5,200 properties across England and Wales, mainly railway arches.

Public sector net debt at the end of February 2019 and the central government net cash requirement in February 2019 were each reduced by an amount equivalent to the cash received by central government from the sale.

We announced on 31 March 2020 that the agreement would mainly be treated as an operating lease with payments for market output being made over a long period of time. Further details are given in the public sector classification guide. This classification is not yet reflected in the statistics in this release.

McCloud pension case

In 2015, the government introduced changes to most public sector pension schemes. As part of the transitional arrangements, older members of the pension schemes had an opportunity to stay in their original pension schemes, which offered better terms than the new schemes introduced at the time. Younger members had to transfer to the new schemes. In December 2018, the Court of Appeal ruled that these arrangements amounted to unlawful age discrimination in a decision that was later upheld by the Supreme Court. 

Although the court ruling was related to judges' and firefighters' pension schemes, on 15 July 2019 the government confirmed that the difference in treatment will need to be remedied across all relevant public sector pension schemes.

Though the government published a progress update on 31 January 2020, the impact of this decision on the public sector finances is still not yet known, but it has the potential to change the size of the pension liability as well as the net borrowing position of the public sector pension sub-sector. We will provide further information on the impacts of this ruling when it becomes available.

Clinical Negligence Indemnity Cover

On 1 April 2019, the government announced the Clinical Negligence Scheme for General Practice (CNSGP), operated by NHS Resolution on behalf of the Secretary of State for Health and Social Care.

The scheme provides comprehensive cover to all general practitioners (GPs) and their wider practice team for clinical negligence relating to NHS services occurring from 1 April 2019. In parallel, the government has agreed commercial terms with the Medical Protection Society covering claims for historical NHS clinical negligence incidents concerning their GP members occurring at any time before 1 April 2019.

We are currently assessing the implications of this scheme for the public sector finances and will announce our findings at the earliest opportunity.

Carillion insolvency

Following Carillion Plc declaring insolvency on 15 January 2018, the UK government announced that it would provide the funding required by the Official Receiver, to ensure continuity of public services through an orderly liquidation. The Official Receiver has been appointed by the court as liquidator, along with partners at PwC that have been appointed as Special Managers. The defined benefit pension schemes of former Carillion employees are currently being assessed by the Pension Protection Fund prior to any transition into the Pension Protection Fund scheme.

We are currently investigating the various impacts of the liquidation of Carillion on the public sector finances, including in relation to the public-private partnership projects in which Carillion was involved and the additional funding that the government has provided to maintain public services. We will announce our findings in due course.

Prior to liquidation, Carillion held approximately 450 contracts with the government, representing 38% of Carillion's 2016 reported revenue.

Back to table of contents

Contact details for this Article

Fraser Munro
Telephone: +44 (0)1633 456402