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  • 1. Public sector finances Iain Bell, Head of Public Sector Finances and Households David Bailey Peter Gittins ONS Economic Forum 7 April 2014 1
  • 2. Impact of ESA 2010 on Public Sector Finance Statistics Review of Public Sector Finance Statistics
  • 3. 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
  • 4. ESA10 impact on Public Sector Finances Peter Gittins
  • 5. 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
  • 6. 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
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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
  • 11. 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
  • 12. 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
  • 13. Impact on PSNB ex (ex RM/APF) -50 0 50 100 150 200 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 £ Billion PSNBex ex RM/APF PSNBex ex RM/APF ESA10
  • 14. Impact on base PSNB ex -50 0 50 100 150 200 1997/9 8 1998/9 9 1999/0 0 2000/0 1 2001/0 2 2002/0 3 2003/0 4 2004/0 5 2005/0 6 2006/0 7 2007/0 8 2008/0 9 2009/1 0 2010/1 1 2011/1 2 2012/1 3 £ Billion PSNBex PSNBex ESA10
  • 15. 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
  • 16. Review of Public Sector Finance Statistics David Bailey
  • 17. 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 at Presentation and dissemination issues The future of the “ex-measures” The ownership of the Bulletin • consultation launched in Dec 2013 • results of consultation published in Feb 2014
  • 18. Key findings of Review Presentation • 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
  • 19. 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
  • 20. 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
  • 21. 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
  • 22. Impacts – PSNB ex
  • 23. Impacts – PSNB ex
  • 24. Impacts – PSNB ex
  • 25. Impacts – PSNB ex
  • 26. Impacts – PSND ex
  • 27. Impacts – PSND ex
  • 28. Impacts – PSND ex
  • 29. Impacts – PSND ex
  • 30. 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