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FINANCING REQUIREMENT

C54 Table C20 presents projections of the net cash requirement by sector, giving details of the various financial transactions that do not affect net borrowing (the change in the sector's net financial indebtedness) but do affect its financing requirement.

Table C20: Public sector net cash requirement (1)

£ billion

1 The figures in this table include the windfall tax and associated spending. Excluding windfall tax receipts and associated spending, the public sector net cash requirement is projected to be £-7.4 billion ( -0.8 per cent of GDP) for 1999-2000. It is projected at £-6.9 billion (-0.7 per cent of GDP) for 2000-01 and £-2 billion (-0.2 per cent of GDP) for 2001-02.

2 Market and overseas borrowing for Local Government and Public corporation sectors.

C55 Table C21 updates the financing arithmetic for 1999-2000 to allow for the latest forecast of the central government net cash requirement, and sets out the arithmetic for
2000-01.

Table C21: Financing requirement forecast

Note: Figures may not sum due to rounding.

1 Remit revised following outturn of the 1998-99 central government net cash requirement.

2 The Reserves require financing in 1999-2000 to replace Euro 3.5billion of Euro Treasury bills. In 2000-01 the Euro 2 billion Euronote, the Euro 2.5 billion Eurobond and expiring forward contracts will be replaced. Future refinancing estimated at current exchange rate.

3 This increase less the 1998-99 overfinancing shows the increase in the stock of T-bills and other short-term debt during 1999-2000 in advance of the DMO taking over responsibility for cash management.

4 Adjusted for financing of the cash deposit at the Bank of England.

C56 The gilts issuance programme for 1999-2000 was revised following the Pre-Budget Report in November 1999. At that time the Government had announced that it would hold an auction of long conventional gilts, and needed a further auction of index-linked gilts if it was to meet its commitment to issue a minimum of £2.5 billion to support the move to index-linked auctions. Keeping to these plans implied gilt sales of around £14 1/4 billion. This requirement was met by a reduction in the expected stock of Treasury bills at 31 March 2000, reflecting the later transfer of cash management from the Bank of England to the Debt Management Office. The Budget forecast shows a further improvement in the public finances and a consequent further reduction in the level of short term debt. The residual adjustment to rebuild the stock of short term debt reduces the requirement for gilt sales in 2000-01.

C57 The central government net cash requirement in 2000-01 is again forecast to be in surplus. This and the planned increase in the stock of short term debt reduces gilt sales to below the level required to refinance gilts redeemed during the year. As in 1999-2000, financing of the foreign currency reserves through sterling and foreign currency swaps to replace maturing foreign currency debt should represent better value for money. This and some restructuring of sterling debt through buy-backs adds to the financing requirement. Together these measures provide additional sales to help address current illiquidity in the gilts market. Details of the debt management plans for 2000-01, including the remits to the Debt Management Office and National Savings, are published today in the 2000-01 Debt Management Report.

HISTORICAL TABLES

C58 Table C22 and C23 set out historical data for the main fiscal aggregates.

Table C22: Historical series of public sector balances, receipts and debt

1 Excluding windfall tax receipts and associated spending.

2 UK national accounts definition (ESA95).

3 At end-March, GDP centred on end-March.

4 Expressed as a ratio to money GDP (ESA95).

5 At end-December; GDP centred on end-December.

Table C23: Historical series of government expenditure

CONVENTIONS USED IN PRESENTING THE PUBLIC FINANCES

NATIONAL ACCOUNTS

The national accounts record most transactions, including most taxes (although not corporation tax), on an accruals basis, and impute the value of some transactions where no money changes hands (for example, non-trading capital consumption). The principal measures drawn from the national accounts are described below.

The current budget (formerly known as the current balance) measures the balance of current account revenue over current expenditure. The definition of the current balance presented in this chapter is very similar to the national accounts concept of net saving. It differs only in that it includes taxes on capital (mainly death duties) in current rather than capital receipts.

Public sector net borrowing (formerly known as the financial deficit in the UK national accounts) is the balance between expenditure and income in the consolidated current and capital accounts. It differs from the public sector net cash requirement because it is measured on an accruals basis and because certain financial transactions (notably net lending and privatisation proceeds, which affect the level of borrowing but not the public sector's net financial indebtedness) are excluded from public sector net borrowing but included in the public sector net cash requirement.

General government net borrowing, which excludes net borrowing of public corporations, is the most internationally comparable measure of the budget deficit. It is reported to the European Commission under the Maastricht Treaty.

CASH BASIS

The cash approach measures the actual cash transactions between the public sector and the rest of the economy. It is the starting point for monthly estimates of net borrowing. Table C20 shows the financial transactions that are deducted to reach net borrowing.

PUBLIC SECTOR CURRENT RECEIPTS

Net taxes and social security contributions in Table C10 are measured on a cash basis, rather than a national accounts (accruals) basis, and, as far as possible, relate to actual cash flows. Income tax credits are netted off. VAT is net of refunds to the public sector. Social security contributions are scored gross of amounts netted off by employers as reimbursement in respect of statutory sick pay and statutory maternity pay. (These payments count as expenditure rather than negative receipts.). "Good causes" receipts from the National Lottery are included.

The accounting adjustments put these cash figures on to a national accounts (accruals) basis. Tax credits which score as expenditure in the national accounts are added back. VAT refunded within the public sector is added back. Those elements of the UK contribution to the EC budget which relate to the UK tax base are deducted as, under ESA95, they are treated for national accounts as taxes imposed directly by the EU.

Certain income tax reliefs are payable regardless of an individual's liability to income tax; thus some payments are made to non-taxpayers. Examples are mortgage interest relief paid under the MIRAS (mortgage interest relief at source) scheme, life assurance premium relief on pre-1984 policies and private medical insurance premium relief for over-60s. The working families tax credit also falls into this category. Total tax relief paid under these schemes is shown as income tax credits in Tables C7 and C9. Income tax receipts in these tables are shown gross of these tax credits. All such tax credits are shown in the national accounts as expenditure. From 2001-02, income tax credits (Table C9) include the new Children's Tax Credit.

TOTAL MANAGED EXPENDITURE (TME)

Public sector capital expenditure is shown in Table C13. It includes:

• (i) gross domestic fixed capital formation (ie expenditure on fixed assets - schools, hospitals, roads, computers, plant and machinery, intangible assets etc) net of receipts from sales of fixed assets (eg council houses and surplus land);
• (ii) grants in support of capital spending by the private sector; and
• (iii) the value of the physical increase in stocks (for central government, primarily agricultural commodity stocks).

Net investment in Table C1 nets off depreciation of the public sector's stock of fixed assets.

Departmental Expenditure Limits (DEL) have distinct current and capital budgets, shown in Table C19. The departmental groupings used in this table are defined at the end of the Annex.

Annually Managed Expenditure (AME) components are shown in Table C11. These include all of social security spending, housing revenue account subsidies, the Common agricultural policy, export credits, net payments to EC institutions, spending by self financing public corporations, public service pensions net of contributions, spending financed by the national lottery and central government gross debt interest.

Total Managed Expenditure (TME), the sum of DEL and AME, is shown in Table C11.

Export Credits Guarantee Department programme includes a classification change since the CSR. The activities of the Guaranteed Export Finance Corporation (GEFCO), whose sole business is to refinance export loans guaranteed by ECGD, thus reducing the cost to Government, have been reclassified to central government and are now included. GEFCO's past activities are now regarded as agency transactions undertaken for the government, as is the funding raised by GEFCO. Its future activities will be funded through ECGD. However, the refinancing activities are financial transactions affecting only the net cash requirement and so are netted out in the accounting adjustments.

Locally financed expenditure comprises local authority self-financed expenditure (LASFE) and Scottish spending financed by local taxation (non-domestic rates and, if and when levied, the Scottish variable rate of income tax). LASFE is the difference between total local authority expenditure, including most gross debt interest but net of capital receipts, and central government support to local authorities (ie Aggregate External Finance (AEF), specific grants and credit approvals).

Central government debt interest is shown gross. Only interest paid within central government is netted off; all other receipts of interest and dividends are included in current receipts. The capital uplift on index-linked gilts is scored as interest at the time it accrues, whereas the cash tables record the actual payments of capital uplift on index-linked gilts, and includes the amortisation of discounts on gilts at issue. Following the GEFCO reclassification, interest is included on the net funds raised by that body (£118 million in 1998/99).

The accounting adjustments include various items within TME but outside DEL which are not shown separately in table C11. These details are shown in table C12. The definition of each line is as follows:

• Line one adds the value of general government non-trading capital consumption.
• Line two adds back VAT refunded to central government departments and local government. Departmental Expenditure Limits and Annually Managed Expenditure programme expenditure are measured net of these refunds, while Total Managed Expenditure is recorded including the VAT paid. Adds VAT refunded to NHS trusts, BBC and ITN in respect of contracted out services for non-business purposes, and adds VAT refunds to DIY house-builders.
• Line three deducts traditional own resources (ie payments of Customs duties and agricultural and sugar levies) and VAT contributions to the European Community, which are included in the net payments to EC institutions line in AME, but excluded from TME.
• Line four adds income tax credits which score as public expenditure under national accounting conventions. Includes Mortgage Interest Relief, Life Assurance Premium Relief, and (from 1999-00) Working Families' Tax Credit and Disabled Persons' Tax Credit.
• Line five includes the Valuation Office, Financial Services Authority and Redundancy Payments Scheme.
• Line six shows accounting adjustments to move to a national accounts basis for scoring public corporations' current and capital spending; adds capital expenditure and debt interest payments outside the public sector and removes capital grants from general government.
• Line seven removes intra-public sector debt interest and dividend payments and receipts which are included elsewhere in Departmental Expenditure Limits and Annually Managed Expenditure.
• Line eight deducts those financial transactions which are scored in Departmental Expenditure Limits and Annually Managed Expenditure.
• Line nine shows other adjustments and include, amongst others, the deduction of grants paid to local authorities by non-departmental public bodies classified to the central government sector and the inclusion of utilities levies netted off in Departmental Expenditure Limits.

DEBT AND WEALTH

Public sector net debt is approximately the stock analogue of the public sector net cash requirement. It measures the public sector's financial liabilities to the private sector and abroad, net of short-term financial assets such as bank deposits and foreign exchange reserves.

General government gross debt is the measure of debt used in the European Union's excessive deficits procedure. As a general government measure, it excludes the debt of public corporations. It measures general government's total financial liabilities before netting off short- term financial assets.

Public sector net worth represents the public sector's overall net balance sheet position. It is equal to the sum of the public sector's financial and non-financial assets less. The estimates of tangible assets are subject to wide margins of error, because they depend on broad assumptions, for example about asset lives, which may not be appropriate in all cases. The introduction of resource accounting for central government departments will lead in time to an improvement in data quality, as audited information compiled from detailed asset registers becomes available.

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