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Pre-Budget Report
The latest projections of the public finances show that the underlying position for the public finances remains sound, and that the Government is on track to meet its fiscal rules:
Cyclically-adjusted public net borrowing is expected to be close to the Budget projections throughout the projection period.
B1 Chapter 2 explained the Government's fiscal framework, its fiscal rules, and how the latest projections of the public finances are consistent with meeting these rules. This annex explains in more detail the Government's performance against the fiscal rules. It includes:
B2 In the interests of transparency, further improvements are to be made to the monthly Public Sector Finances First Release. Box B1 explains these changes.
B3 One of the key roles of the Pre-Budget Report (PBR) is to provide an update of the projections of the public finances contained in the Budget, taking account of developments in both the public finances and the economy since Budget time. It is important to note that the public finance projections in the PBR present an interim forecast update and do not necessarily represent the final outcome the Government is seeking. Therefore, the projections contained in the PBR should not be interpreted as the Government's desired outcome.
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Box B1: Major improvements to monthly public finance statistics Significant improvements are in hand for the reporting of public finance statistics by the Office for National Statistics (ONS)1. From 18 November 1999, for the first time, monthly figures for the public sector surplus on current budget will be presented in the Public Sector Finances First Release. The improvement means that the key measures needed to assess progress against the Government's fiscal framework will all be published together on a monthly and timely basis. This will aid scrutiny of the Government's fiscal policy. Monthly estimates will thus be available for:
The surplus on current budget is defined as net saving, plus receipts from capital taxes, in line with national accounts under the European System of Accounts 1995 (ESA95). ESA95 also defines net borrowing. From March 2000 general government net borrowing (included in the First Release) will be reported to the European Commission on an ESA95 basis under the requirements of the Maastricht Treaty. In addition, there will be a new summary of monthly central government receipts and expenditure on a national accounts basis, as defined by ESA95. This new summary will show the central government transactions which help determine the surplus on current budget and net borrowing. These are: taxes on production, taxes on income and wealth, other taxes, social contributions, interest and dividend receipts, the total of other receipts, interest payments, net social benefits paid, the total of other current expenditure, gross investment and depreciation. This will enable users to see the components of monthly central government net borrowing more clearly than was previously possible, and so help improve understanding of recent trends. For the public sector as a whole, the release will also include for the first time, monthly estimates of net investment. 1 The Public Sector Finances First Release is issued jointly by the ONS and HM Treasury. More information can be found on the internet at http://www.ons.gov.uk. |
B4 Table B1 compares the PBR projections for the key fiscal aggregates, used for assessing performance against the two fiscal rules, with those made at the time of the last Budget. A current budget surplus of £9.5 billion is now estimated for 1999-2000, compared with the Budget projection of £2 billion. A similar improvement is seen for public sector net borrowing. A net repayment of £3.5 billion is now expected in 1999-2000, compared with a projected deficit of £3 billion in Budget 99.
Table B1: Fiscal balances comparison with Budget 1991
| Outturn2 | Estimate | Projections | ||||
| 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | |
| Fiscal balances (£ billion) | ||||||
| Surplus on current budget - PBR | 7.2 | 9.5 | 11 | 13 | 13 | 12 |
| Surplus on current budget - Budget 99 | 4.1 | 2 | 4 | 8 | 9 | 11 |
| Net borrowing - PBR | -2.5 | -3.5 | -3 | -3 | 1 | 4 |
| Net borrowing - Budget 99 | -1.0 | 3 | 3 | 1 | 3 | 4 |
| Cyclically-adjusted fiscal balances (per cent of GDP) | ||||||
| Surplus on current budget - PBR | 0.6 | 0.9 | 1.0 | 1.2 | 1.2 | 1.1 |
| Surplus on current budget - Budget 99 | 0.2 | 0.6 | 1.0 | 1.1 | 0.9 | 1.0 |
| Net borrowing - PBR | 0.0 | -0.2 | -0.2 | -0.2 | 0.1 | 0.4 |
| Net borrowing - Budget 99 | 0.1 | 0.0 | -0.2 | -0.1 | 0.3 | 0·4 |
1 Excluding windfall tax receipts and associated spending.
2 The 1998-99 figures were estimates in Budget 99.
B5 Table B2 shows latest outturns for the key fiscal aggregates, together with estimates for the current year and projections up to 2004-05. Outturns and projections of other important measures of the public finances, including net borrowing and net worth, are also shown.
Table B2: Summary of public sector finances1
| Per cent of GDP | ||||||||
| Outturns | Estimate | Projections | ||||||
| 1997-98 | 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | |
| Fairness and prudence | ||||||||
| Surplus on current budget | -0.6 | 0.8 | 1.1 | 1.2 | 1.3 | 1.2 | 1.1 | 1.0 |
| Long-term sustainability | ||||||||
| Public sector net debt2 | 42.2 | 40.3 | 38.2 | 36.9 | 35.3 | 34.1 | 33.2 | 32.5 |
| Net worth2,3 | 14.7 | 13.7 | 15.6 | 16.6 | 17.8 | 18.3 | 18.9 | 19.2 |
| Primary balance | 1.9 | 3.2 | 2.9 | 2.9 | 2.8 | 2.3 | 1.9 | 1.5 |
| Economic impact | ||||||||
| Net investment | 0.6 | 0.6 | 0.7 | 0.9 | 1.1 | 1.3 | 1.5 | 1.5 |
| Public sector net borrowing | 1.2 | -0.3 | -0.4 | -0.3 | -0.3 | 0.1 | 0.4 | 0.5 |
| Financing | ||||||||
| Central government net cash requirement2 | 0.4 | -0.5 | 0.1 | 0.0 | -0.1 | 0.1 | 0.6 | 0.7 |
1 Excluding windfall tax receipts and associated spending.
2 Including windfall tax receipts and associated spending.
3 Previously net wealth, end-calendar year.
B6 The current budget balance improved from a deficit of over 1/2 per cent of GDP in 1997-98 to a surplus of nearly 1 per cent of GDP in 1998-99. The surplus is expected to rise further in the current year, to over 1 per cent of GDP. Beyond this year, the current budget surplus is projected to remain in a range of 1 to 11/4 per cent of GDP to 2004-05.
B7 Net borrowing is equal to net investment minus the surplus on the current budget. Public sector net investment is projected to be around 3/4 per cent of GDP this year, implying a repayment of net borrowing of around 1/2 per cent of GDP. The ratio of net investment to GDP is projected almost to double between 1997-98 and 2001-02, and to increase to 11/2 per cent of GDP by 2003-04.
B8 The primary balance is equal to (minus) net borrowing excluding net debt interest payments- thus abstracting from the implications of past fiscal deficits. Assuming real interest rates exceed trend GDP growth, a primary surplus is required to stabilise the net debt ratio. The primary balance has swung from a deficit of 1/2 per cent of GDP in 1996-97 to an estimated surplus of nearly 3 per cent of GDP this year. It is projected to be in surplus by between 11/2 per cent of GDP and 3 per cent of GDP throughout the next five years.
B9 The central government net cash requirement is projected to remain modest on average over the next five years. The approximate stock counterpart to the net cash requirement is net debt. With the stock of public sector net debt rising only slowly over the next five years, steady GDP growth gradually reduces the debt-GDP ratio. The debt ratio falls from just over 40 per cent last March, to just over 38 per cent at the end of the current financial year. The debt ratio continues to fall, to under 33 per cent by March 2005.
Chart B1: Public sector net debt
B10 The approximate stock counterpart to the current budget balance is public sector net worth (previously known as net wealth). The projection of steady current budget surpluses of over 1 per cent of GDP a year begin to raise net worth, after a prolonged period in which the poor state of the public finances had eroded net worth to under 15 per cent of GDP, from
77 per cent of GDP in 1980. The Office for National Statistics (ONS) is currently in the process of improving the quality of balance sheets by taking advantage of new data from the introduction of resource accounts for central government departments. These developments are reported in an article in November 1999 Economic Trends.
Chart B2: Public sector net worth
Table B3: Fiscal balances1
| Per cent of GDP | ||||||||
| Outturns | Estimate | Projections | ||||||
| 1997-98 | 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | |
| Fiscal balances | ||||||||
| Surplus on current budget | -0.6 | 0.8 | 1.1 | 1.2 | 1.3 | 1.2 | 1.1 | 1.0 |
| Average surplus since 1997-98 | -0.6 | 0.1 | 0.4 | 0.6 | 0.8 | 0.8 | 0.9 | 0.9 |
| Net borrowing | 1.2 | -0.3 | -0.4 | -0.3 | -0.3 | 0.1 | 0.4 | 0.5 |
| Cyclically-adjusted fiscal balances | ||||||||
| Surplus on current budget | -0.6 | 0.6 | 0.9 | 1.0 | 1.2 | 1.2 | 1.1 | 1.0 |
| Net borrowing | 1.2 | 0.0 | -0.2 | -0.2 | -0.2 | 0.1 | 0.4 | 0.5 |
| Memo | ||||||||
| Output gap | 0.5 | 0.3 | 0.2 | 0.2 | 0.1 | 0.0 | 0.0 | 0.0 |
1 Excluding windfall tax receipts and associated spending.
B11 Table B3 shows the updated projections of the current budget and net borrowing as a per cent of GDP, and their cyclically-adjusted equivalents, which allow underlying, or structural, trends in the indicators to be seen more clearly, after the estimated effects of the economic cycle are removed. The state of the public finances has been transformed since 1996-97. From a deficit of nearly 3 per cent of GDP in 1996-97, the current budget is expected to be in surplus by over 1 per cent of GDP this year. The current surplus is projected to remain at around 1 to 11/4 per cent of GDP over the next five years.
B12 The cyclically-adjusted current budget has moved from a deficit of over 1/2 per cent of GDP in 1997-98 to a surplus of over 1/2 per cent last year. It is expected to rise further this year, to an estimated surplus of nearly 1 per cent of GDP. With the economy projected to be slightly above trend over the following two years, the cyclically-adjusted current budget surpluses are a little smaller than the unadjusted projections.
B13 There has been a corresponding improvement in cyclically-adjusted net borrowing. From a deficit of over 1 per cent of GDP in 1997-98, cyclically-adjusted net borrowing is estimated to become a small net repayment in 1999-2000. In following years, the cyclically-adjusted PSNB is small and very similar to the projections in Budget 99.
Chart B3: Cyclically-adjusted current budget
B14 The fiscal projections are based on prudent and cautious assumptions (see paragraphs B18 to B20 and Box B2). A particularly important matter, however, is the risk of misreading trend output. Chart B3 therefore illustrates a still more cautious case, in which the level of trend output is assumed to be 1 per cent lower than in the central projection above. This scenario would imply that a greater proportion of the projected surplus on current budget was due to cyclical strength of the economy: a 1 per cent larger output gap reduces the structural surplus on current budget by about 3/4 per cent of GDP a year. Nonetheless, even under this scenario, the cyclically-adjusted current budget is estimated to have been in balance last year, and is projected to move into surplus from this year onwards.
Forecast errors and risks
B15 The fiscal balances are the difference between two large aggregates of spending and receipts, and forecasts of them are inevitably subject to wide margins of error. Over the past five years, the average absolute error (ie the average error irrespective of whether the errors have been positive or negative) for one-year ahead forecasts of net borrowing has been over 1 per cent of GDP, or plus or minus £9 billion at today's prices. The error tends to grow as the forecast horizon lengthens. (See Table B13 on page 122 of the November 1998 PBR). Much of this error arises from errors in the forecasts of GDP.
B16 Short-term forecasts of the public finances are critically dependent on the path of the economy, as most tax revenues and some public expenditure (especially social security) vary automatically with the economic cycle. If GDP growth were 1 per cent higher or lower than assumed over the coming year, net borrowing might be lower or higher by about 1/2 per cent of GDP in the first year (equivalent to about £4 billion) and lower or higher by a further 1/4 per cent (£2 billion) in the second year. As illustrated above, errors in estimating trends carry significant implications for public finance projections.
B17 The fiscal projections assume that:
Table B4: Economic assumptions for public finance projections
| Percentage changes on previous year | ||||||||
| 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | ||
| Output (GDP) - PBR | 13/4 | 21/4 | 21/4 | 21/4 | 21/4 | 21/4 | 21/4 | |
| Output (GDP) - Budget 99 | 13/4 | 1 | 21/2 | 23/4 | 21/2 | 21/4 | - | |
| GDP deflator - PBR | 21/2 | 21/4 | 21/2 | 21/2 | 21/2 | 21/2 | 21/2 | |
| GDP deflator - Budget 99 | 21/2 | 21/2 | 21/2 | 21/2 | 21/2 | 21/2 | - | |
| Money GDP (£ billion) - PBR | 851 | 890 | 934 | 978 | 1024 | 1073 | 1124 | |
| Money GDP (£ billion) - Budget 99 | 848 | 880 | 925 | 975 | 1023 | 1072 | - | |
B18 The key assumptions underlying the fiscal projections have been audited by the National Audit Office (NAO). Ten of the eleven key assumptions and conventions used for the last Budget projections are unchanged. In accordance with these assumptions and conventions, trend GDP growth is assumed to be 21/4 per cent a year; UK claimant unemployment is assumed flat at recent levels; equity prices are projected to grow from current levels in line with money GDP; and interest rates are projected in line with market expectations (Box B2).
B19 However, a new, and more cautious, assumption has been adopted for oil prices. Previously, the fiscal projections were based on flat oil prices (in real terms) at or around their current levels. This assumption was audited and endorsed by the NAO in November 1997. The new assumption is that when the average of independent forecasts shows a fall in the oil price, this average is used for projecting North Sea revenues. Oil prices are then assumed to remain unchanged in real terms at this lower level beyond the next year. When the average shows a rise, oil prices are assumed to remain unchanged in real terms from current levels, as in the previous assumption. This approach has been endorsed by the NAO, whose report, Audit of the Oil Price Assumption for the Pre-Budget Report November 1999, is published as a House of Commons Paper (HC873).
B20 The latest projections of North Sea revenues are based on the average of independent forecasts of oil prices for the year ahead, compiled in 'Forecasts for the UK Economy' (HM Treasury, October 1999). The independent average forecast is currently that Brent oil prices fall from their present level of around $22 a barrel to $18.70 a barrel in 2000.
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Box B2: Key assumptions audited by the NAO |
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Credit is taken only for proceeds from sales that have been announced. |
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Only direct effects of the Spend to Save programme on receipts and spending are allowed for. |
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21/4 per cent a year. |
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Constant at recent levels, 1.23 million. |
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3 month market rates change in line with market expectations as of November 4. |
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FT-All share index rises from 2,850 in line with money GDP. |
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Ratio of VAT to consumption falls by 0.05 percentage points a year. |
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Projections of price indices used to plan public expenditure are consistent with RPIX. |
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Shares of labour income and profits in national income are broadly constant in the medium term. |
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Financing assumptions used to project debt interest are consistent with the public finances forecast and with financing policy. |
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$18.70 a barrel in 2000, the average of independent forecasts, and then constant in real terms. |
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1 See Audit of Assumptions for the July 1997 Budget Projections, 19 June 1997 (HC3693) 2 Audit of Assumptions for the Pre-Budget Report, 25 November 1997 (HC361) 3 Audit of Assumptions for the Budget, 19th March 1998 (HC616) 4 Audit of the Unemployment Assumption for the March 1999 Budget Projections, 9 March 1999 (HC294) 5 Audit of the Oil Price Assumption for the Pre-Budget Report November 1999 (HC873) |
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B21 Table B5 shows projections for the current and capital budgets in £ billion and Table B6 shows the current and capital budget projections as a per cent of GDP. The tables show the current surplus and net borrowing both including and excluding windfall tax receipts and associated spending. The latter gives a better picture of underlying movements. Latest estimates of associated spending are given in Table 4.1.
Table B5: Current and capital budgets
| £ billion | |||||||||||
| Outturn | Estimate | Projections | |||||||||
| 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | |||||
| Current budget | |||||||||||
| Current receipts | 335.5 | 352.1 | 370 | 389 | 407 | 426 | 444 | ||||
| Current expenditure | 312.5 | 329.7 | 346 | 362 | 380 | 398 | 417 | ||||
| Depreciation | 13.6 | 13.8 | 14 | 15 | 15 | 16 | 16 | ||||
| Surplus on current budget (including WTAS1) | 9.5 | 8.5 | 10 | 12 | 13 | 12 | 11 | ||||
| Surplus on current budget2 | 7.2 | 9.5 | 11 | 13 | 13 | 12 | 11 | ||||
| Capital budget | |||||||||||
| Gross investment | 22.9 | 24.0 | 26 | 29 | 32 | 35 | 36 | ||||
| less asset sales | -4.3 | -3.8 | -4 | -4 | -4 | -4 | -4 | ||||
| less depreciation | -13.6 | -13.8 | -14 | -15 | -15 | -16 | -16 | ||||
| Net investment | 5.0 | 6.4 | 8 | 10 | 13 | 16 | 17 | ||||
| Net borrowing (including WTAS1) | -4.5 | -2.1 | -1 | -1 | 1 | 4 | 6 | ||||
| Net borrowing2 | -2.5 | -3.5 | -3 | -3 | 1 | 4 | 6 | ||||
| Public sector net debt - end year | 349.4 | 349.2 | 352 | 353 | 357 | 364 | 374 | ||||
| Memos: | |||||||||||
| General government net borrowing3 | |||||||||||
| ESA79 | -7.2 | -4.4 | -5 | -3 | -2 | 3 | 4 | ||||
| ESA95 | -4.2 | -2.8 | -2 | -2 | 1 | 4 | 6 | ||||
| General government gross debt3, 4 | 399.6 | 399.4 | 403 | 404 | 409 | 416 | 427 | ||||
1 Windfall tax receipts and associated spending.
2 Excluding windfall tax receipts and associated spending.
3 Maastricht measures of the government deficit and debt. From February 2000, the Maastricht measures will move from being reported under ESA79 to ESA95 accounting conventions.
4 The stock of gross debt is not affected by the move to ESA95 accounting conventions.
B22 The current budget surplus in 1999-2000 is estimated to be £91/2 billion. This is a higher surplus than the Budget forecast by £7 billion. Receipts are higher by £7 billion; current spending is higher by nearly £1 billion; and depreciation is lower by £1 billion. Public sector net borrowing is estimated to be in surplus by £31/2 billion this year, a similar improvement on the Budget forecast as for the current budget. Within the capital budget, a lower estimate of depreciation, following downward revisions to outturn data, increases net investment relative to the Budget forecast.
B23 The stronger position in 1999-2000 than anticipated at the time of the March 1999 Budget reflects three main factors:
B24 The current budget surplus is projected to rise slightly, to £11 billion in 2000-01. With net investment projected to increase relatively strongly, the repayment on net borrowing is expected to remain at about £3 billion next year.
B25 From 2001-02 onwards, with the economy growing at trend, the projected current budget surpluses gradually build up. Current expenditure rises in line with GDP, while receipts rise slightly faster. With public net investment increasing as a share of GDP, net borrowing moves from surplus to modest deficits from 2002-03.
B26 Table B6 shows the Maastricht measures of the deficit and debt used in the Excessive Deficits Procedure of the Maastricht Treaty, as a per cent of GDP. From February 2000, the Maastricht measures will move from being reported under ESA79 to ESA95 accounting conventions, and thus will be fully consistent with the UK national accounts, which moved to being on an ESA95 basis in September 1998. Table B6 shows the Maastricht measures under both the ESA79 and ESA95 accounting conventions. The reference levels of 3 per cent of GDP for the deficit and 60 per cent of GDP for debt are achieved comfortably throughout the projection period, on either definition.
Table B6: Current and capital budgets
| Per cent of GDP | |||||||||||||
| Outturn | Estimate | Projections | |||||||||||
| 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | |||||||
| Current budget | |||||||||||||
| Current receipts | 39.4 | 39.6 | 39.6 | 39.8 | 39.8 | 39.7 | 39.5 | ||||||
| Current expenditure | 36.7 | 37.0 | 37.1 | 37.0 | 37.1 | 37.1 | 37.1 | ||||||
| Depreciation | 1.6 | 1.6 | 1.5 | 1.5 | 1.5 | 1.5 | 1.4 | ||||||
| Surplus on current budget (including WTAS1) | 1.1 | 1.0 | 1.0 | 1.2 | 1.2 | 1.1 | 1.0 | ||||||
| Surplus on current budget2 | 0.8 | 1.1 | 1.2 | 1.3 | 1.2 | 1.1 | 1.0 | ||||||
| Capital budget | |||||||||||||
| Gross investment | 2.7 | 2.7 | 2.8 | 3.0 | 3.2 | 3.3 | 3.2 | ||||||
| less asset sales | -0.5 | -0.4 | -0.4 | -0.4 | -0.4 | -0.3 | -0.3 | ||||||
| less depreciation | -1.6 | -1.6 | -1.5 | -1.5 | -1.5 | -1.5 | -1.4 | ||||||
| Net investment | 0.6 | 0.7 | 0.9 | 1.1 | 1.3 | 1.5 | 1.5 | ||||||
| Net borrowing (including WTAS1) | -0.5 | -0.2 | -0.1 | -0.1 | 0.1 | 0.4 | 0.5 | ||||||
| Net borrowing2 | -0.3 | -0.4 | -0.3 | -0.3 | 0.1 | 0.4 | 0.5 | ||||||
| Public sector net debt | 40.3 | 38.2 | 36.9 | 35.3 | 34.1 | 33.2 | 32.5 | ||||||
| Memos: | |||||||||||||
| General government net borrowing3 | |||||||||||||
| ESA79 | -0.9 | -0.5 | -0.5 | -0.3 | -0.2 | 0.3 | 0.3 | ||||||
| ESA95 | -0.5 | -0.3 | -0.2 | -0.2 | 0.1 | 0.4 | 0.5 | ||||||
| General government gross debt3, 4 | |||||||||||||
| ESA79 | 47.4 | 45.3 | 43.5 | 41.7 | 40.3 | 39.2 | 38.3 | ||||||
| ESA95 | 47.0 | 44.9 | 43.1 | 41.3 | 39.9 | 38.8 | 38.0 | ||||||
1 Windfall tax receipts and associated spending.
2 Excluding windfall tax receipts and associated spending.
3 Maastricht measures of the government deficit and debt. From February 2000, the Maastricht measures will move from being reported under ESA79 to ESA95 accounting conventions.
4 The move to ESA95 accounting conventions does not affect the stock of gross debt, but it does increase money GDP, by about £8 billion in 1998-99.
RECEIPTS
B27 Table B7 gives projections of receipts, as a percentage of GDP, over the medium term. Changes in the receipts projections since the Budget for this year and next are shown in Table B8. A more detailed breakdown, in £ billion, for 1999-2000 and 2000-01 is given in Table B9. Table B10 sets out the projected change in the tax-GDP ratio.
Table B7: Current receipts
| Per cent of GDP | |||||||
| Outturn | Estimate | Projections | |||||
| 1998-99 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | 2003-04 | 2004-05 | |
| Income tax (gross of tax credits) | 10.4 | 10.6 | 10.7 | 10.9 | 11.1 | 11.2 | 11.3 |
| Income tax credits1 | -0.2 | -0.4 | -0.5 | -0.7 | -0.7 | -0.7 | -0.7 |
| of which: | |||||||
| Working Families' Tax Credit | -0.1 | -0.5 | -0.5 | -0.5 | -0.5 | -0.5 | |
| Corporation tax | 3.5 | 3.8 | 3.5 | 3.7 | 3.6 | 3.5 | 3.3 |
| Windfall tax | 0.3 | ||||||
| Value added tax | 6.1 | 6.3 | 6.2 | 6.2 | 6.1 | 6.1 | 6.1 |
| Excise duties2 | 4.2 | 3.9 | 4.0 | 3.9 | 3.9 | 3.8 | 3.7 |
| Social security contributions | 6.5 | 6.3 | 6.3 | 6.3 | 6.3 | 6.4 | 6.3 |
| Other taxes and royalties3 | 6.6 | 6.6 | 6.7 | 6.8 | 6.8 | 6.7 | 6.8 |
| Net taxes and social security contributions4 | 37.4 | 37.0 | 36.8 | 37.2 | 37.2 | 37.0 | 36.8 |
| Accruals adjustments on taxes | 0.0 | 0.4 | 0.3 | 0.1 | 0.1 | 0.1 | 0.1 |
| less own resources contribution to EU budget | -0.7 | -0.7 | -0.6 | -0.5 | -0.4 | -0.4 | -0.3 |
| Income tax credits5 | 0.2 | 0.4 | 0.5 | 0.6 | 0.6 | 0.6 | 0.6 |
| Other receipts | 2.6 | 2.5 | 2.6 | 2.4 | 2.4 | 2.4 | 2.3 |
| Current receipts (including windfall tax)6 | 39.4 | 39.6 | 39.6 | 39.8 | 39.8 | 39.7 | 39.5 |
| Current receipts (excluding windfall tax)6 | 39.1 | 39.6 | 39.6 | 39.8 | 39.8 | 39.7 | 39.5 |
| Memo: | |||||||
| Current receipts (£bn)5,6 | 335.5 | 352.1 | 370.0 | 389.0 | 407.0 | 426.0 | 444.0 |
1 Mainly MIRAS and tax reliefs under the Working Families' Tax Credit and Children's Tax Credit schemes.
2 Fuel, alcohol and tobacco duties.
3 Includes Council Tax and money paid into the National Lottery Distribution Fund, as well as other central government taxes. Net of bus fuel duty rebate.
4 Includes VAT and 'own resources' contributions to EU budget. Net of income tax credits. Cash basis.
5 Excludes Children's Tax Credit, which scores as a tax repayment in the national accounts.
6 Accruals basis.
B28 Excluding the windfall tax, total receipts are estimated to rise by 53/4 per cent this year, and by 5 per cent in 2000-01. The expected slowdown in receipts growth next year - equivalent to £21/2 billion - cannot be explained by either the behaviour of GDP or the effect of past Budget measures. Rather, the main explanation for this slowdown is a temporary decline in corporation tax revenues, in part reflecting the effects of the new instalment payments system, see paragraph B33. Thereafter, total receipts grow by about 5 per cent a year in 2001-02 and 2002-03. Receipts growth slows slightly in 2003-04, largely reflecting the transitional effects of the new corporation tax regime.
Table B8: Changes in current receipts since Budget 99
| £ billion | |||
| 1998-99 | 1999-00 | 2000-01 | |
| Income tax (gross of tax credits) | 0.9 | 3.2 | 4.1 |
| Income tax credits | 0.0 | -0.5 | 0.0 |
| Corporation tax | 0.2 | 3.6 | 0.6 |
| Capital gains tax | -0.4 | -0.7 | -0.6 |
| Value added tax | 0.6 | 1.7 | 1.2 |
| Excise duties1 | 0.0 | -1.8 | -3.1 |
| Social security contributions | 0.2 | 0.5 | 1.5 |
| Other taxes and royalties2 | 1.1 | 1.6 | 0.6 |
| Net taxes and social security contributions | 2.6 | 7.5 | 4.4 |
| Other receipts and accounting adjustments | -1.3 | -0.4 | 1.6 |
| Current receipts | 1.3 | 7.2 | 5.9 |
1 Fuel, alcohol and tobacco duties.
2 Includes Council Tax and money paid into the National Lottery Distribution Fund, as well as other central government taxes. Net of bus fuel duty rebate.
B29 Total receipts in 1998-99 were over £1 billion higher than expected at Budget time, mostly reflecting higher than expected income tax and VAT receipts towards the end of the year. In 1999-2000, receipts are expected to exceed the Budget forecast by over £7 billion. In part, this reflects stronger GDP growth this year than expected in March, together with higher than expected growth of the tax base for given GDP.
Income tax receipts
B30 Income tax receipts in 1998-99 were nearly £1 billion higher than forecast at the time of the Budget. About half of this reflects a higher proportion of self-assessment receipts being allocated to income tax rather than to capital gains tax (with a correspondingly lower than expected outturn for the latter). The rest reflects higher PAYE at the end of the year, in turn reflecting higher than expected growth of wages and salaries.
B31 Wages and salaries growth is similarly expected to exceed the Budget projections somewhat this year and next, partly reflecting the recent strength of employment. The expected outlook for wages and salaries adds about £3 billion to the income tax projections next year, relative to the Budget projections. The profile for interest rates implied by the audited assumption adds over £1 billion to income tax receipts next year, reflecting the impact on households' savings income.
Corporation tax
B32 Receipts of corporation tax in 1999-2000 are expected to be about £31/2 billion above the Budget forecast. The main contributions to the higher forecast are:
B33 Revenue from corporation tax is expected to fall by £1 billion in 2000-01 because of the downturn in non- financial companies' profits in 1999 and the impact of the transition to instalments, which produces less extra yield in 2000-01 than in the preceding and succeeding years. Nonetheless, the forecast yield is higher than expected at the last Budget. Corporation tax to be paid by North Sea companies has been increased by about £11/2 billion a year. Tax from financial companies is also expected to be higher, in line with higher profitability. The yield is forecast to rise sharply from £321/2 billion in 2000-01, to £361/2 billion in 2001-02, and £37 billion in 2002-03. The yield will then level off or fall slightly as the extra yield from the transition to instalments ends. (See Box B3).
VAT receipts
B34 VAT receipts in 1999-2000 are expected to exceed the Budget forecast by £13/2 billion. This fully reflects higher levels of consumer spending; the underlying ratio of VAT receipts to consumer spending is expected to fall this year in line with the Budget forecast. The forecast for later years of VAT revenues is governed by the NAO audited assumption that, after allowing for the effects of Budget measures, the ratio of VAT receipts to consumer spending declines gradually over the entire forecast period, by 0.05 percentage points a year.
Excise duties
B35 Cash receipts of excise duties are expected to fall short of the Budget forecast by about £13/4 billion this year. Most of this shortfall is in tobacco duty, although the forecast of fuel duties has also been written down slightly, reflecting lower than expected receipts so far this year. The causes of the shortfall in tobacco duty this year are complex, and not fully understood. However, it seems that cigarette purchases have been lower than generally expected, with manufacturers able to meet demand so far this year largely from stocks of duty paid product. In addition, fraudulent evasion of tobacco duty may have increased by slightly more than assumed at Budget time. The forecast is accordingly based on more cautious assumptions for the market share of smuggled cigarettes over the next five years.
B36 The effect of changing the assumption about the future path of road fuel and tobacco excises (see paragraph 2.51) is to reduce receipts in 2000-01 by £11/4 billion in cash terms, building up to £6 billion by 2003-04.
Social security contributions
B37 Social security (national insurance) contributions are expected to be about £3/4 billion higher this year, and nearly £11/2 billion higher next year, than the Budget forecast. This fully reflects the revision to the forecast of wages and salaries mentioned earlier.
Other taxes and receipts
B38 The forecast yield from other taxes and royalties has been revised up by nearly £11/2 billion this year. This mostly reflects higher receipts of North Sea revenues. Oil prices have been higher than assumed in the Budget so far this year and although, under the new audited assumption (see paragraphs B19 and B20), they are assumed to fall next year, they would remain a lot higher than assumed in the Budget.
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