HISTORIC PRESS RELEASE : A Better Format for Public Finances [June 1998]
The press release issued by HM Treasury on 11 June 1998.
A new format for the public finances was unveiled today by the Chancellor, Gordon Brown in the first Economic and Fiscal Strategy Report.
The new format:
- emphasises the importance of distinguishing between current and capital spending;
- corresponds more closely to the Government’s two fiscal rules; and is more in line with best international practice and national accounts.
The main changes are to separate the current and capital accounts and to focus on an internationally-accepted accruals-based measure of budget balance. The three principal measures are:
- surplus on current budget – the difference between current receipts and current spending – will be used to judge the golden rule;
- public sector net borrowing – measuring the extent to which net investment is not financed by the surplus on current budget – will be the principal measure of the Government’s budget deficit; and
- net public sector debt ratio – total debt of the public sector (net of certain liquid assets) as a proportion of GDP – will be used to judge whether the Government is meeting its sustainable investment rule.
The public finance tables will continue to show the public sector net cash requirement (previously called PSBR, but being renamed because it does not exactly match what the government has to borrow). However, public sector net borrowing will be given greater prominence because it is a better indicator of the underlying budgetary position.
This presentation links the current and capital budgets to other key fiscal concepts:
- the current budget is linked to achieving the golden rule over the economic cycle and to the change in public sector net wealth;
- the sum of the current and capital budgets is linked to the net cash requirement and the change in net public sector debt.
There will be no change to the financing rule.
