Public sector finances

Iain Bell, Head of Public Sector Finances and HouseholdsDavid BaileyPeter Gittins

ONS Economic Forum

7 April 20141

Impact of ESA 2010 on Public Sector Finance StatisticsReview of Public Sector Finance Statistics

Background• European System of Accounts 2010 will be

implemented in National Accounts and Public Sector Finances in September 2014

• Announced estimates of impact in December 2013 will follow-up and further detail in February 2014

• Launched consultation on the 2013 Review of Public Sector Finances in December 2013 with consultation to end of January

• Announced conclusions in February 2014 following consultation

• All changes being implemented together to ensure managed as single coherent set of changes rather than drip feed revisions

ESA10 impact on Public Sector FinancesPeter Gittins

ESA10 implementation • September 2014 UK publishes ESA10 based National

Accounts and PSF• This means a number of significant changes for PSF

mostly in 2014 but some later• Change can have different impacts for PSF and

National Accounts• We recognise PSF users have specific needs – early

warning of key changes given in December/February• Scale of impact still not confirmed - especially post

2010 since this is still being processed

Main ESA10 Changes for PSF

• Reclassification of Network Rail• Change in treatment of pension schemes• Mobile phone licences• Royal Mail Pension Plan• Capitalisation of new non financial assets

Network Rail

• New guidance in ESA10 makes Network Rail a Central Government body

• PSND raised by around £30bn in 2012/13• PSNB raised by £2.5bn to £3.0bn 2012/13

• Mostly reduces surplus on current budget• Impact similar in all years from the

reclassification in 2004

Pension schemes

• New guidance on treatment of funded, defined benefit pension schemes• Includes Local Government scheme

• Imputed contributions added to cover the entitlements/contributions gap

• The imputed contributions increase wage bill (compensation of employees)

• This is extra current spending which increases current budget deficit

• PSNB raised by £2bn to £2.5bn in 2012/13

3G/4G mobile phone licenses

• New rules on permits to use natural resources

• Changes the profile of receipts from sales of mobile phone licences

• Now rent rather than sale of an asset (current receipts not capital receipts)

• Rent is accrued over life of the lease even if paid up front

• 3G licenses recorded as around £1bn per year over 20 years instead of £22bn in 2000

RMPP transfer to Government in 2012

• New rules on pension scheme transfers • RMPP assets (around £28bn) no longer count

as a one-off capital transfer to government• Now a financial advance for social contributions• Future payments offset by imputed revenue (around £1bn a

year)

• RMPP liabilities/assets gap (around £10bn) now considered a capital transfer to Royal Mail

• Overall impact is to add around £37bn to PSNB in 2012/13

New non financial assets

• New rules on when spending is capitalised • Weapons Systems• R&D• Decommissioning costs

• Different impact than for National Accounts• No impact on PSNB - just changes current

and capital spending ratio• Current spend adjusted for capital

consumption becomes capital spend

Impact Summary• PSND(ex) around £30bn higher in 2012/13 - all

from Network Rail• PSNB(ex) excl RMPP and APF

• Around £5bn higher 2012/13 • Around £2.5bn from Network Rail• Around £2.5bn from local government pension schemes• Reduces net lending in 2000/01 due to phone licences

• Base PSNB(ex) • Also increased by around £37bn in 2012/13 due to

RMPP

Impact on PSNB ex (ex RM/APF)

1997

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1998

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1999

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2000

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2001

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2002

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2003

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2004

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2005

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2006

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2007

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2008

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2009

/10

2010

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2011

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2012

/13

-50

0

50

100

150

200

PSNBex ex RM/APF

PSNBex ex RM/APF ESA10

£ Billion

Impact on base PSNB ex

1997

/98

1998

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1999

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2000

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2001

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2002

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2003

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2004

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2005

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2006

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2007

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2008

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2009

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2010

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2011

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2012

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50

100

150

200

PSNBex

PSNBex ESA10

£ Billion

Conclusions

• Significant change to PSF from ESA10• Range of other smaller changes not covered

here (e.g. treatment of tax receipts)• Additional ESA10 changes through to

2017/18 • Mainly presentational with limited PSF impact

• Committed to helping users understand the changes• More detail available in the published articles• More on detailed impacts before September

Review of Public Sector Finance StatisticsDavid Bailey

Review of Public Sector Finance Statistics - timeline• announced in May 2013 • took forward the recommendations of the UK

Statistics Authority as part of their Review of the Asset Purchase Facility

• ONS-led review looking atPresentation and dissemination issuesThe future of the “ex-measures”

The ownership of the Bulletin• consultation launched in Dec 2013• results of consultation published in Feb 2014

Key findings of ReviewPresentation• improve the presentation of PSF Statistics• increase the availability of data to help users understand

drivers of change in Public Sector Finances• increase the transparency of impacts of financial

interventions and other one-off factors on the Public Sector Finances

Ex-Measures• the current guidance for defining “ex-measures” is no longer

fit-for-purpose• replace the existing measure of Public Sector Finances which

excludes financial interventions with a new measure which excludes only the Public Sector Banks;

• bring consistency to the treatment of shares and compensation payments in the Public Sector Finances

The ‘ex-measures’ - conclusion• the existing ex-measure guidance are no longer fit for

purpose• however there is an ongoing need for ex-measures to

exclude the Public Sector Banks• Consulted on new principles for any ex-measures

based around:• Ensuring a measure as inclusive as possible to ensure

transparent reporting of public liabilities whilst allowing exclusions due to size and lack of correlation with the need for Government to issue gilts

• Consistency • between treatments for debt and borrowing• with National Accounts standards• with European System of Accounts standards

New ‘ex-measures’ consistent with these principles

• the Public Sector excluding the Public Sector Banks (defined as Lloyds, RBS and, prior to 2010, Northern Rock and Bradford & Bingley)

• accompanied by details of- impacts of financial interventions on the measure

- separate table showing details on the APF

• No issues raised with either the principles or the proposed measures through the consultation and user discussions

Liquid Assets

Current approach• shares in RBS and Lloyds are currently treated as liquid

assets • the payments made by the Financial Services

Compensation Scheme (FSCS) are in substance long term loans, which are currently treated as liquid assets

New approach• ‘ex measures’ will treat these items consistently with all

other such items – i.e. no longer treated as liquid assets• ONS will publish supporting information – such as impact

of share sales on debt

Impacts – PSNB ex

Impacts – PSNB ex

Impacts – PSNB ex

Impacts – PSNB ex

Impacts – PSND ex

Impacts – PSND ex

Impacts – PSND ex

Impacts – PSND ex

Implementation

• Changes to figures• Initial impacts published in Feb 2014• ‘Shadow table’ showing key aggregates under ESA10 plus

changes from Review of Public Sector Finances will be published from June 2014

• Full transition to ESA10 in September 2014• ‘Shadow table’ showing key aggregates under ESA95 and

old ex-measures will be published until April 2015

• Presentational changes• Some new tables prior to September 2014• Introduction of new presentational framework and related

tables / commentary in September 2014• Further tables introduced after September 2014