Annex B to Chapter 4

Conventions used in presenting the public finances

4B.1 The FSBR presents the public finances in two main ways; on a cash basis and on a national accounts, or accruals, basis. This Annex briefly describes the two approaches and outlines the relationships between the various public finances tables in Chapters 1, 4, 5 and 6.

4B.2 An important point to note at the outset is that the key expenditure and receipts aggregates, general government expenditure (GGE) and general government receipts (GGR), are national accounts concepts. But they can be disaggregated on both a national accounts basis and on a largely cash basis.

Cash basis

4B.3 The cash approach concentrates on the actual cash transactions between the public sector and the rest of the economy in any given period of time. It is particularly useful for analysing the components of the PSBR, which is itself almost entirely a cash concept. A cash basis also corresponds closely to the way public expenditure is planned, controlled and accounted for at present.

Tables 1.6, 4.1, 4.4 and 6.4

4B.4 The main - albeit summary - presentation of the public finances on a cash basis is given in Tables 1.6 and 4.1. Supporting disaggregation of the Control Total is shown in Table 6.4, while Tables 4.4 and 4A.1 provide breakdowns of general government receipts.

4B.5 As far as possible, the figures in these tables relate to actual cash flows. The estimates of taxes for example are for tax payments received during the year, rather than for liabilities incurred. There are however, a number of items which are not on a cash basis:

  • "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;
  • VAT refunded to central and local government is included in "other taxes and royalties" (Table 4.4 and Table 4A.1);
  • an imputed flow for capital consumption by general government is included in "other receipts" (Table 4.4 and Table 4A.1).
These latter two flows have no impact on the PSBR as they also appear on the expenditure side of the account in "accounting adjustments" (Table 1.6). This line also includes various other adjustments needed to get back to the national accounts basis required for GGE.

4B.6 The final departure from a cash basis is the "central government debt interest" line of Table 1.6, which scores the capital uplift on index-linked gilts as interest at the time it accrues. Because the PSBR is on a cash basis, an offset is made in the form of an accruals adjustment to "other receipts" (Table 4A.1). This removes the accrued uplift scored and adds back any actual payments of uplift on redemptions.

4B.7 Tables 1.5 and 4.5 are on the same basis as Table 1.6.

Table 4A.3

4B.8 The other cash-based table is Table 4A.3, which shows the finances of central government. Unlike the earlier tables, this is genuinely a cash presentation, based on information from central government funds and accounts. The imputed flows for refunded VAT, social security contributions and capital consumption are all excluded, and the "interest payments" line takes account of actual payments of capital uplift on index-linked gilts, rather than the accrued uplift.

4B.9 Similar tables cannot be produced for local authorities or public corporations because the available cash data are not comprehensive. The finances of these sectors, shown in Tables 4A.4 and 4A.5, are presented on the national accounts basis described below.

National accounts basis

4B.10 The national accounts are produced by the CSO for the UK as a whole using an internationally agreed framework. Public finances shown on this basis can thus be placed more easily into the context of the rest of the economy, highlighting the inter-relationships between different sectors.

Table 4A.6

4B.11 Table 4A.6 gives a detailed national accounts presentation of the short-term forecasts for the public finances. Under the measurement conventions used in the national accounts:
  • most transactions, including most taxes (although not corporation tax), are recorded on an accruals rather than a cash payments basis;
  • transactions are grouped by economic category. So, for example, transfer payments are distinguished from expenditure on goods and services;
  • the value of some transactions is imputed where no money changes hands (for example, non-trading capital consumption).
4B.12 The publi c sector financial deficit is the balance between expenditure and income in the combined current and capital accounts (line 30 of Table 4A.6). Unlike the PSBR, the financial deficit is not wholly a measure of cash transactions because certain items above line 30 are measured on an accruals basis. The appropriate accruals adjustments are made in lines 34 and 35. Certain other financial transactions, notably net lending and privatisation proceeds, are also excluded from the financial deficit, but included in the PSBR.

4B.13 As the national accounts distinguish between current and capital transactions, they provide the natural framework in which to identify the current balance and capital spending. The current and capital breakdown shown in Table 4A.6 differs from the usual national accounts conventions in two respects. First, capital taxes (line 3) are counted as current rather than capital receipts on the grounds that they are not strictly speaking pure taxes on capital. And second, an estimate of depreciation is deducted from capital expenditure and added to current expenditure.

4B.14 GGE can be derived from the general government column of Table 4A.6 by taking current expenditure (line 20) plus capital expenditure (line 29) and adding:

  • the Reserve (lines 19 and 28, all assumed to be general government);
  • net lending to the private sector and abroad (line 31);
  • cash expenditure on company securities (line 32);
  • and net lending by central government to public corporations (£0.4 billion in 1994-95 and minus £1.0 billion in 1995-96).
4B.15 Correspondingly, GGR comprises general government current receipts (line 11) plus capital transfers (line 22), less:
  • transactions concerning public sector pension schemes (line 33);
  • accruals adjustments (lines 34 and 35);
  • miscellaneous financial transactions (line 36).

Tables 1.1 and 4.2

4B.16 A summary version of the public sector column of Table 4A.6 provides the framework for Tables 1.1 and 4.2. So, for example, "receipts" and "current expenditure" in these tables correspond to lines 11 and 20 of Table 4A.6. "Public sector net capital spending" represents the balance on the capital account: that is, total capital expenditure (line 29 of Table 4A.6) net of capital transfers (line 22). GGE and GGR cannot be derived from Table 1.1 because it show figures for the public sector, rather than just general government, and because it gives insufficient detail of the various financial transactions.

4B.17 Tables 1.1 and 4.2 show the current balance in the same way as Table 4A.6. Tables 4A.4 and 4A.5 are also on a national accounts basis.

Table 4A.9

4B.18 An accruals basis is used to calculate taxes (and social security contributions and council tax) as a percent of GDP (Table 4A.9), because this gives a measure of the underlying burden of taxation stemming from a particular period of economic activity. It is not affected, for example, by the precise timing of tax receipts.

Tables 4A.4 and 4A.5

4B.19 Table 4A.6 shows local authorities' self-financed expenditure (net of their receipts from central government - line 17) and their receipts from outside the public sector (net of debt interest payments to central government - line 9). Table 4A.4, in contrast, provides figures for total local authority expenditure and receipts. It also gives a summary presentation of the income and expenditure flows in the local authority accounts, which it is not practical to put together from any other sources.

4B.20 Table 4A.5 serves the same purposes for public corporations as Table 4A.4 does for local authorities. Because public corporations are trading bodies, the national accounts presentation is a little different from that for general government. Most current expenditure is netted off from income to leave the gross trading surplus (shown under receipts). The expenditure side of the account only shows interest, dividend and tax payments, plus capital spending.

Borrowing requirements

4B.21 The PSBR can be disaggregated into component borrowi ng requirements in different ways. Tables 1.6 and 4.1 shows the PSBR as the sum of the general government borrowing requirement (GGBR) and market and overseas borrowing by public corporations (PCMOB). An alternative is to split it, as in Table 4A.2 and Table 4A.6 (line 37), between central government borrowing on its own account (the CGBR(O)), and borrowing by local authorities and public corporations (the LABR and PCBR respectively). The borrowing requirement shown in the general government column of Table 4 A.6 is not in fact the GGBR, but the GGBR(O). The GGBR can be calculated from the GGBR(O) by adding in public corporations' borrowing from central government (given in paragraph 4B.14).

Public sector debt

4B.22 Table 4.3 sets out projections for two different measures of public sector debt. Net public sector debt is the stock analogue of the PSBR. It measures the public sector's financial liabilities to the private sector and abroad, net of short-term financial assets.

4B.23 Gross general governme nt 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. 

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Reviewed 1 October 1996