UK government debt and deficit: June 2017

• General government gross debt was £1,720.0 billion at the end of the financial year ending March 2017, equivalent to 86.8% of gross domestic product (GDP), an increase of £68.1 billion compared with the end of March 2016 (when it was also 86.8% of GDP).

• The latest government debt figure exceeds the reference value of 60% of GDP set out in the Protocol on the Excessive Deficit Procedure; general government gross debt first exceeded the 60% Maastricht reference value at the end of the financial year ending March 2010, when it was 69.9% of GDP or £1,076.6 billion.

• General government deficit (or net borrowing) was £45.5 billion in the financial year ending March 2017 (equivalent to 2.3% GDP), a decrease of £30.3 billion compared with the financial year ending March 2016 (when it was 4.0% of GDP).

• The Protocol on the Excessive Deficit Procedure states that general government deficit should not exceed the reference value of 3.0% of GDP; this is the first time the government deficit has been below the reference value since the financial year ending March 2008, when it was 2.9% of GDP or £44.8 billion.

This section presents information on aspects of data or methodology, introduced since the last publication in July 2017, that are important to understand when reading this bulletin.

Rail for London

We have implemented the reclassification of Rail for London (RfL) from the local government sector to the public corporations sector, effective from April 2011. In implementing this reclassification it was identified that subsidy payments reported in the Rail for London accounts were already being captured in Department for Communities and Local Government (DCLG) expenditure source data. As a result, local government net borrowing was overstated by around £100 million per financial year. This has been corrected as part of the implementation of the reclassification.

Tube Lines Ltd

As part of the work to reclassify Rail for London we also reviewed more widely the way in which subsidiaries of Transport for London (a local government body) are recorded in the local government and public corporation sub-sectors. As part of this review it was identified that revenue received by Tube Lines Ltd, which is classified to the local government sector, had not been considered. This revenue was around £500 million per financial year and its inclusion has reduced local government net borrowing by an equivalent amount, in each financial year from April 2011 to date.

Public sector pension schemes

Improvements to pension estimates in national accounts have resulted in better data for recording the effect of both funded and unfunded public sector pension schemes in government finances.

Methods for estimating the net liability of the Local Government Pension Scheme (LGPS) and associated imputed flows have been reviewed and improved estimates produced based on the latest actuarial valuations of the LGPS. This has had a significant impact on general government net borrowing.

We have also reviewed several other funded pension schemes to identify cases whereby government should be considered the pension manager and as a result classified central government as the pension manager for a number of schemes.

The previously mentioned changes to funded pension schemes have been introduced with effect from 1997 and impact local and central government net borrowing as well as government liabilities, however, this work has had no impact on government debt.

In addition to the changes to funded public sector pension schemes, we have also reviewed the data and methods previously used for unfunded public sector pension schemes. This has led to a number of revisions, with one of the larger changes being the recording of pension transfers in and out of unfunded schemes as other capital transfers rather than the previous treatment within social contributions and social benefits.

Full details of the pension changes have been published in the article Employment-related pensions in public sector finances.

Vehicle Excise Duty

Historically, Vehicle Excise Duty (VED) was split by fixed proportions between a tax on production for private producers and a tax on income from household consumers. This method has been improved, with estimates from the Annual Business Survey for all producing sectors being used to more accurately estimate these proportions.

This improvement has changed the proportion of VED attributable to taxes on production and taxes on income with effect from 1997 but is neutral in terms of its impact on central government net borrowing.

Parking fines

Income from parking fines received by local authorities is no longer being recorded as payments for non-market output and is instead being recorded as other current transfers.

This change has been introduced with effect from 1997 and is neutral in terms of its impact on local government net borrowing.

Background

The EU government deficit and debt statistical bulletin is published quarterly in January, April, July and October each year, to coincide with when the UK and other EU member states are required to report on their deficit (or net borrowing) and debt to the European Commission.

Article 126 of the Treaty on the Functioning of the European Union (EU) obliges member states to avoid excessive budgetary deficits. The Protocol on the Excessive Deficit Procedure, annexed to the Maastricht Treaty, defines two criteria and reference values with which member states’ governments should comply. These are:

• a deficit (net borrowing) to gross domestic product (GDP) ratio of 3%

• a debt to GDP ratio of 60%

For the UK, financial year (April to March) figures are used by the European Commission when assessing against the Protocol on the Excessive Deficit Procedure.

What are the most important terms I need to know?

Deficit (or net borrowing) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment). A positive value indicates borrowing while a negative value indicates a surplus.

Debt represents the amount the public sector owes to UK private sector organisations and overseas institutions, largely as a result of government financial liabilities on the bonds (gilts) and Treasury bills it has issued.

While deficit represents the difference between income and spending over a period of time, debt represents the total amount of money owed at a point in time. This debt has been built up by successive government administrations over many years. When the government borrows (that is, runs a deficit), this adds to the debt total. So reducing the deficit is not the same as reducing the debt.

Are our figures adjusted for inflation?

The monetary values quoted are in current prices, that is, they represent the price of debt and deficit in the year to which they relate without any adjustments for inflation. For comparisons over time, the figures as a percentage of GDP (also measured in current prices) are used to provide comparable time series.

Is this release consistent with UK public sector finances?

The general government debt and deficit figures published in this bulletin (for the time period 1997 onwards), are fully consistent with those published in the UK Public sector finances: August 2017 statistical bulletin, published on 21 September 2017.

What are the differences between this release and the figures published in the public sector finances bulletin?

There are two main differences between the headline debt and deficit measures published in the public sector finances and the deficit and debt figures published in this bulletin:

1. coverage – this bulletin includes only the debt and deficit of central and local government bodies, whereas the public sector finances’ measures also include the debt and deficit of other public sector bodies, including public non-financial corporations and Bank of England

2. the treatment of liquid assets in debt – this bulletin reports gross debt, whereas the public sector finances’ focus is net debt; gross debt represents only the financial liabilities (debt securities, loans and deposits) of central and local government, while net debt deducts any liquid assets (official reserve assets and other cash or cash-like assets) from these financial liabilities

How do these figures compare internationally?

This release is fully consistent with the latest data transmission on UK government deficit (or net borrowing) and debt that the UK and other EU member states are required to report quarterly to the European Commission.

Eurostat analyses all data provided by member states and publishes a press release, which places the UK figures in a European context and provides commentary on any issues specific to member states.

Both the debt and deficit figures in this statistical bulletin will be published by Eurostat on 23 October 2017. More detailed statistics on quarterly deficit of European member states will be published on 24 October 2017.

According to the latest figures published in April 2017, there were four member states that had a deficit in 2016 equal or higher than 3% of gross domestic product (GDP) reference value, while 16 member states (including the UK) had gross debt as at the end of 2016 that exceeded the 60% of GDP reference value.

The tables in this bulletin present the UK government debt and deficit position at the end of both the financial and calendar years. The UK, uniquely within the EU, is assessed against the deficit and debt on a UK financial year basis (that is, April to March). In September 2017, the UK provided to Eurostat revised estimates for the financial year ending March 2017 and revised estimates for the calendar year 2016. Estimates for the financial year ending March 2017 were first provided in June 2017 and estimates for the calendar year 2016 were first provided in March 2017.

This bulletin reports that, in 2016 and in the financial year ending March 2017, the UK government deficit as a percentage of GDP is below the reference value; while debt at the end of 2016 and in the financial year ending March 2017 still exceeds the 60% of GDP reference value.

At the end of the financial year ending March 2017, UK government gross debt was £1,720.0 billion, equivalent to 86.8% of gross domestic product (GDP), an increase of £68.1 billion compared with the financial year ending March 2016.

General government gross debt first exceeded the 60.0% Maastricht reference value at the end of the financial year ending March 2010, when it was 69.9% of GDP or £1,076.6 billion.

At the end of the calendar year 2016, UK government gross debt was £1,731.4 billion (88.3% of GDP). This represents an increase of £65.4 billion since the end of the calendar year 2015.

The higher gross debt value at the end of the calendar year 2016 compared with at the end of the financial year ending March 2017 largely reflects the drop in stock of Treasury bills in issuance over the first quarter (Jan to Mar) of 2017 of around £27 billion. This drop in the liabilities from Treasury bills is partly offset by increases in the liabilities on gilts, loans and deposits.

In the financial year ending March 2017, the UK government deficit was £45.5 billion, equivalent to 2.3% of gross domestic product (GDP), a decrease of £30.3 billion compared with the financial year ending March 2016. This represents the lowest annual deficit (as a percentage of GDP) since the financial year ending March 2002, when it was 0.4% of GDP and the first time the UK government deficit has been below 3% of GDP since the financial year ending March 2008, when it was 2.9% of GDP.

In the calendar year 2016, the UK government deficit was £57.2 billion (2.9% of GDP), a decrease of £23.3 billion compared with the calendar year 2015.

Revisions can be the result of both updated data sources and methodology changes.

This quarter (Quarter 2 2017 or April to June 2017) we introduced changes to the methodology that led to revisions to government deficit data back to the financial year ending March 1997. Such changes are discussed in section 2 of this release.

Most of the data revisions relate to revised departmental (and other government bodies) source data being received for the financial year ending March 2017 (April 2016 to March 2017). However, revisions are not limited to this period; there have been some revisions in earlier years. Such changes are discussed in section 2 of this release.

Table M8R presents the revisions to our main aggregates since the last publication of the Government deficit and debt return as reported to the European Commission in July 2017. These revisions are consistent with revisions incorporated within the public sector finances statistical bulletin.

The Public sector finances revision policy provides information of when users of the statistics published in the public sector finances and UK government debt and deficit for Eurostat statistical bulletins should expect to see methodological and data-related revisions. More detail of the methodology and sources employed can be found in the Public sector finances methodological guide.

The public sector finances Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• uses and users of the data

• how the output was created

• the quality of the output including the accuracy of the data

On 20 June 2017, the UK Statistics Authority published a letter confirming the designation of the quarterly UK government debt and deficit bulletin as a National Statistic. This letter completes the 2015 assessment of public sector finances.

To meet UK Statistics Authority requirements we published an article, Quality assurance of administrative data used in the UK public sector finances. This report provides an assessment of the administrative data sources used in the compilation of the public sector finance statistics, in accordance with the UK Statistics Authority’s Administrative Data Quality Assurance Toolkit.

Classification decisions

Each quarter we publish a forward workplan outlining the classification assessments we expect to undertake over the coming 12 months. To supplement this, each month a classifications update is published, which announces classification decisions made and includes expected implementation points (for different statistics) where possible. Classification decisions are reflected in the public sector finances at the first available opportunity and, where necessary, outlined in this section of the statistical bulletin.

Supporting documentation

Documentation supporting this publication is available in appendices to the bulletin.

Summary, reconciliation, and revisions information on UK government deficit and debt figures by calendar and financial year.

Excessive Deficit Procedure (EDP) calendar year and financial year main tables

The EDP financial year and calendar year main tables report annually on UK government deficit and debt levels.

European System of Accounts (ESA) 2010 Table 2

Main aggregates of general government ESA Table 2 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

ESA Table 25

Quarterly non-financial accounts of general government ESA Table 25 provides a breakdown of general government expenditure (both current and capital) and general government revenue.

ESA Table 27

Quarterly financial accounts of general government Complete set of quarterly financial accounts of the general government sector and its sub-sectors compiled according to ESA 2010.

ESA Table 28

Quarterly government debt (Maastricht debt) for general government Government debt on a quarterly basis, for general government and its sub-sectors.

ESA Table 9

Detailed tax and social contribution receipts by type of tax or social contribution and receiving sub-sector ESA Table 9 shows tax receipts on a calendar year basis for general government and its sub-sectors, compiled according to ESA 2010. The table provides a breakdown of receipts for the different types of tax and social contributions.

ESA Questionnaire on the detailed list of taxes and social contributions according to national classification

Otherwise known as the National Tax List, or NTL, this table shows a complete list of taxes and social contributions received by general government and its sub-sectors, compiled according to ESA 2010.