B The Public Finances

The public finances have been transformed over the past two years. The current budget has moved into surplus this year, and the debt burden is falling. Chapter 2 of the EFSR briefly summarised these developments and the prospects for the public finances. This annex presents more detail. It includes:

estimates of the fiscal balances for 1998-99 and comparisons with the forecasts made in last year's Budget and last November's Pre-Budget Report;
projections for the public finances over the next five years, starting with the key assumptions on which the projections are based and then describing in turn the prospects for budget balances, debt, public expenditure and receipts; and
some more detailed analyses of sectoral borrowing and funding. Historical series for different measures of the main fiscal aggregates, and a description of the accounting conventions used in presenting the public finances, are given at the end of the annex.

The key points are:

It is estimated that the current budget will be £4 billion in surplus in 1998-99. This compares with an average deficit of over 4 per cent of GDP between 1991-92 and 1996-97. Net borrowing, which peaked five years ago at almost 8 per cent of GDP, has also moved into surplus. Net debt, which doubled over the first half of the 1990s, has been falling as a percentage of GDP since mid-1997.
The Budget continues to lock in this improvement for the future. On the assumption that the economy grows at the lower end of the opportunity ranges given in Annex A, the current budget is projected to remain in surplus. While fiscal policy provides support for the economy during its below trend phase, the structural position continues to improve.
As economic growth picks up, the current budget is projected to move increasingly into surplus in the medium term. Net borrowing remains low, despite higher public investment (set to double as a percentage of GDP over this Parliament), and the debt burden continues to fall.
The fiscal rules are met with some margin to spare.
Both the budget deficit and debt burden were well within Maastricht reference levels in calendar 1998. It is expected that the Maastricht criteria will continue to be met with comfort.

estimates of the fiscal balances for 1998-99 and comparisons with the forecasts made in last year's Budget and last November's Pre-Budget Report;
projections for the public finances over the next five years, starting with the key assumptions on which the projections are based and then describing in turn the prospects for budget balances, debt, public expenditure and receipts; and
some more detailed analyses of sectoral borrowing and funding. Historical series for different measures of the main fiscal aggregates, and a description of the accounting conventions used in presenting the public finances, are given at the end of the annex.

The key points are:

It is estimated that the current budget will be £4 billion in surplus in 1998-99. This compares with an average deficit of over 4 per cent of GDP between 1991-92 and 1996-97. Net borrowing, which peaked five years ago at almost 8 per cent of GDP, has also moved into surplus. Net debt, which doubled over the first half of the 1990s, has been falling as a percentage of GDP since mid-1997.
The Budget continues to lock in this improvement for the future. On the assumption that the economy grows at the lower end of the opportunity ranges given in Annex A, the current budget is projected to remain in surplus. While fiscal policy provides support for the economy during its below trend phase, the structural position continues to improve.
As economic growth picks up, the current budget is projected to move increasingly into surplus in the medium term. Net borrowing remains low, despite higher public investment (set to double as a percentage of GDP over this Parliament), and the debt burden continues to fall.
The fiscal rules are met with some margin to spare.
Both the budget deficit and debt burden were well within Maastricht reference levels in calendar 1998. It is expected that the Maastricht criteria will continue to be met with comfort.

THE POSITION IN 1998-99

B1 Over the first ten months of 1998-99, there was a budget surplus of £7½ billion, compared with net borrowing of £3½ billion in the first ten months of 1997-98. This large improvement was largely in the central government balance, although local authorities and public corporations both repaid debt.

Table B1: Net borrowing in April-January

	£ billion
	1997-98	1998-99	Change
Central government	4·8	-4·8	-9·6
Local government	-0·1	-0·3	-0·2
Public corporations	-1·3	-2·5	-1·2
Public sector	3·4	-7·6	-10·9

B2 For 1998-99 as a whole, it is estimated that there will be a net repayment of £1 billion. This estimate is still uncertain; the levels of both spending and receipts towards the end of the financial year are always hard to predict. A provisional estimate of the outturn will be published by the Office for National Statistics on 20 April 1999.

B3 It is estimated that the current budget will be in surplus by £4 billion (½ per cent of GDP) in 1998-99. The first estimate of the outturn will be published by the Office for National Statistics on 27 May 1999. This year's surplus compares with a deficit of £22½ billion (3 per cent of GDP) in 1996-97. An estimated ¾ per cent of this 3½ per cent of GDP improvement is accounted for by above-trend economic growth. About ¾ per cent is accounted for by tax measures in the 1997 and 1998 Budgets. The remainder mainly reflects comparatively slow growth of public spending, as the Government has kept within the plans it inherited for the first two years.

Table B2: Change in current budget surplus between 1996-97 and 1998-99¹

	Per cent of GDP
Outturn for 1996-97	-3
Effect of tax changes²	¾
Estimated effect of economic cycle	¾
Other (chiefly public spending)	2
Forecast for 1998-99	½
¹Excluding windfall tax and associated spending.
²Tax changes (relative to an indexed base) in 1997 and 1998 Budgets.

B4 Table B3 compares these latest estimates for 1998-99 with the forecasts that were made in the 1998 Budget and the 1998 PBR. Comparisons with the 1998 Budget forecasts are complicated by the introduction of the new European System of National Accounts (ESA95) in September 1998. To facilitate comparison, the 1998 Budget forecasts are adjusted for classification changes, so as to put them on the same basis as the estimated outturns.

Table B3: Comparison with 1998 forecasts¹

	£ billion
	1997-98	1998-99
Surplus on current budget:
1998 FSBR (old basis)	-1·3	3·6
1998 FSBR (ESA95 basis)	-4·8	-0·1
1998 PBR	-4·4	5·5
1999 FSBR	-5·1	4·1
Net investment:
1998 FSBR (old basis)	6·2	6·7
1998 FSBR (ESA95 basis)	4·6	5·0
1998 PBR	3·8	4·0
1999 FSBR	4·0	3·1
Net borrowing
1998 FSBR (old basis)	7·5	3·1
1998 FSBR (ESA95 basis)	9·4	5·1
1998 PBR	8·2	-1·5
1999 FSBR	9·1	-1·0
¹ Excluding windfall tax and associated spending.

B5 On constant definitions, the improvement in the public finances has been greater than expected at the time of the last Budget. The estimated current budget surplus of £4 billion in 1998-99 compares with a forecast of balance in the last Budget. Receipts, especially from income tax and social security contributions, have been higher than expected, while expenditure, especially on social security, has been lower. Forecast surpluses have been revised downwards slightly since the PBR. This mainly reflects lower receipts than expected from corporation tax. The estimated net debt repayment of £1 billion compares with a forecast of net borrowing of £5 billion in the last Budget.

B6 The debt burden has fallen more quickly than expected in last year's Budget. From a peak of 44.7 per cent of GDP in mid-1997, the net debt ratio fell below 40 per cent at end-January 1999. Borrowing is usually high in the last two months of the financial year, and the ratio may be a little above 40 per cent at end-March.

Chart B1: Public sector net debt

B7 The estimated net wealth of the public sector fell from around 70 per cent of GDP in the late 1980s to just 15 per cent of GDP at end-1997 - in part because of rising debt and in part because privatisations and historically low levels of public investment reduced the stock of government assets. But, with the current budget now in surplus, net wealth is likely to have stabilised in 1998 as a percentage of GDP.

PROSPECTS

ASSUMPTIONS

B8 The projections:

assume that the economy follows the path described in Annex A. In the interests of caution, the lower end of the opportunity range for GDP growth has been used;
take account of the effects of the Budget measures, but assume that there are no further tax changes beyond the escalators for fuel and tobacco duties and the indexation of rates and allowances;
assume that Departmental Expenditure Limits (DEL) are in line with the plans set out in the July 1998 Comprehensive Spending Review (CSR); and
incorporate new projections of Annually Managed Expenditure (AME) and assume that the AME margin is the same as in the CSR.

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
Output (GDP)	1¾	1	2½	2¾	2½	2¼
Prices
RPIX	2¾	2¼	2½	2½	2½	2½
GDP deflator	2½	2½	2½	2½	2½	2½
RPI (September)¹	3¼	1¼	3	2¾
Rossi (September)¹	2¼	2	2	2
Money GDP (£ billion)	848	880	925	975	1023	1072
¹ Used for projecting social security expenditure over the following financial year.

B9 Ten of the eleven key assumptions and conventions audited by the National Audit Office (NAO) and used for last year's Budget projections (see page 109 of the March 1998 FSBR and the NAO report Audit of Assumptions for the Budget, 19 March 1998, HC 616) are unchanged. In accordance with these assumptions and conventions, oil prices are assumed flat at $11 a barrel (in real terms), equity prices are projected to grow from current levels in line with money GDP, and interest rates are projected in line with market expectations.

B10 A new, more cautious, planning assumption is used for projecting expenditure on social security. Previously, the projections were based on the assumption that claimant unemployment would remain constant. This assumption is a long-standing convention that was endorsed by the National Audit Office (NAO) before the 1997 Budget and has been retained in subsequent forecasts. While simple and transparent, such an assumption does not provide a consistently cautious basis for projecting social security expenditure at every point in the cycle.

B11 It has been decided to base the projections of social security expenditure in this Budget on the average of outside forecasts of unemployment compiled in Forecasts of the UK Economy (latest edition, HM Treasury, February 1999). When such an average shows a rise, that will be used as the basis for fiscal planning. This does not reflect the Government's views on the prospects for unemployment. It is a deliberately cautious approach for the purpose of fiscal planning. When unemployment is projected to fall by outside forecasters, the flat assumption will again be used.[2] This approach has been endorsed by the NAO, whose report, Audit of the Unemployment Assumption for the March 1999 Budget Projections, is published as a House of Commons Paper (HC 294).

BUDGET DEFICITS

B12 Table B5 shows projections for the current and capital budgets in £ billion and Table B6 shows them as a percentage of GDP.

B13 While the estimated current budget surplus for 1998-99 has been revised down since the PBR in the light of lower than expected receipts, the forecasts for the next two years have been revised up. This reflects downward revisions to the projections of public spending. Lower interest rates and inflation will reduce debt interest, while spending on social security is turning out substantially lower than projected in last July's Comprehensive Spending Review.

B14 With economic growth assumed to be lower in 1999-2000, receipts (excluding windfall tax) are projected to rise only slightly as a percentage of GDP. As a result, the current budget surplus falls slightly next year, after several years of improvement. But the structural position continues to improve - Table B7.

Table B5: Current and capital budgets

	£ billion
	Outturn	Estimate			Projections
	1997-98	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04
Current budget
Current receipts	315·7	334·2	345	364	385	405	425
Current expenditure	304·3	313·5	329	346	362	379	398
Depreciation	14·0	14·6	15	15	16	16	17
Surplus on current budget
(including windfall tax)	-2·6	6·2	1	3	7	9	11
Surplus on current budget¹	-5·1	4·1	2	4	8	9	11
Capital budget
Gross investment	22·0	21·7	24	26	29	32	35
less asset sales	-4·0	-3·8	-4	-4	-4	-4	-4
less depreciation	-14·0	-14·6	-15	-15	-16	-16	-17
Net investment	4·0	3·4	5	7	10	12	15
Net borrowing
(including windfall tax)	6·6	-2·8	4	5	2	3	4
Net borrowing¹	9·1	-1·0	3	3	1	3	4
¹ Excluding windfall tax receipts and associated spending.

B15 From 2001-02 onwards, with the economy growing at or slightly above trend, the projected current budget surpluses gradually build up. Current expenditure rises in line with GDP, while receipts rise slightly faster because of real fiscal drag (the tendency under a progressive income tax system for receipts to grow faster than incomes as incomes grow), the impact of past Budget measures and real increases in excise duties. Over the economic cycle (1997-98 to 2002-03), the surpluses average ½ per cent of GDP; so that the golden rule is met with a margin to spare - Table B7.

B16 Net borrowing is expected to become positive again next year, partly reflecting the reduction in the current budget surplus and partly an increase in public investment. Although net investment is projected to more than double as a share of GDP between 1998-99 and 2001-02, net borrowing remains low as a percentage of GDP.

B17 Table B6 also shows the definition of the budget deficit - general government net borrowing on an ESA79 basis - used in the Excessive Deficits Procedure of the Maastricht Treaty. The reference level of 3 per cent of GDP is achieved very comfortably. There was a surplus on the Maastricht measure of 0.6 per cent of GDP in 1998. A small deficit of 0.3 per cent of GDP is forecast for 1999.

Table B6: Current and capital budgets

	Per cent of GDP
	Outturn	Estimate			Projections
	1997-98	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04
Current budget
Current receipts	38·9	39·4	39·2	39·4	39·5	39·6	39·7
Current expenditure	37·5	37·0	37·4	37·4	37·1	37·1	37·1
Depreciation	1·7	1·7	1·7	1·6	1·6	1·6	1·6
Surplus on current budget
(including windfall tax)	-0·3	0·7	0·1	0·3	0·7	0·9	1·0
Surplus on current budget¹	-0·6	0·5	0·3	0·4	0·8	0·9	1·0
Capital budget
Gross investment	2·7	2·6	2·7	2·9	3·0	3·2	3·3
less asset sales	-0·5	-0·4	-0·4	-0·4	-0·4	-0·4	-0·3
less depreciation	-1·7	-1·7	-1·7	-1·6	-1·6	-1·6	-1·6
Net investment	0·5	0·4	0·6	0·8	1·0	1·2	1·4
Net borrowing
(including windfall tax)	0·8	-0·3	0·5	0·5	0·2	0·3	0·4
Net borrowing¹	1·1	-0·1	0·3	0·4	0·1	0·3	0·4
Public sector net debt	42·5	40·6	39·4	38·2	36·8	35·6	34·6
Memos:
Net taxes²	36·6	37·2	36·6	36·7	37·0	37·0	37·1
Maastricht deficit³	0·6	-0·6	0·3	0·2	0·2	0·1	0·3
General government gross
debt	49·6	47·6	46·6	45·3	43·5	42·2	41·0
¹ Excluding windfall tax receipts and associated spending.
² Total tax receipts and social security contributions net of tax credits.
³ General government net borrowing on an ESA79 basis. The Maastricht definition does not exclude the windfall tax and associated spending.

Table B7: Budget balances¹

		Per cent of GDP
	Outturns	Estimate			Projections
	1997-98	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04
Budget balances
Surplus on current budget	-0·6	0·5	0·3	0·4	0·8	0·9	1·0
Average surplus since 1997-98	-0·6	-0·1	0·0	0·1	0·3	0·4	0·5
Net borrowing	1·1	-0·1	0·3	0·4	0·1	0·3	0·4
Cyclically-adjusted budget balances
Surplus on current budget	-0·7	0·2	0·6	1·0	1·1	0·9	1·0
Average surplus since 1997-98	-0·7	-0·2	0·1	0·3	0·4	0·5	0·6
Net borrowing	1·1	0·1	0·0	-0·2	-0·1	0·3	0·4
¹ Excluding windfall tax receipts and associated spending.

PUBLIC SECTOR DEBT

B18 Table B8 sets out projections for two measures of debt. Public sector net debt (used to judge the sustainable investment rule) is approximately the stock counterpart of public sector borrowing, while general government gross debt is the Maastricht measure. Both measures rose sharply over the first half of the 1990s as a result of the high levels of government borrowing and slow growth in money GDP, but peaked as a percentage of GDP in 1997. Public sector net debt is projected to fall from under 41 per cent of GDP at the end of the current financial year to under 35 per cent in five years time. General government gross debt was 51 per cent of GDP at end-1998 - comfortably below the Maastricht criterion of 60 per cent - and is projected to fall to 42 per cent of GDP.

Table B8:Public sector debt¹

	Outturn	Estimate			Projections
	1998	1999	2000	2001	2002	2003	2004
Public sector net debt
£ billion	353	350	355	363	367	373	380
-per cent of GDP²	42·5	40·6	39·4	38·2	36·8	35·6	34·6
General government gross debt
£ billion	403	404	410	419	424	431	439
-per cent of GDP³	50·8	48·8	47·7	46·3	44·5	43·1	41·9
¹ End-March.
² GDP centred on end-March.
³ Maastricht basis.

RECEIPTS

B19 In total, the Budget measures have little effect on taxes on an accruals basis in 1999-2000 and 2000-01, and reduce tax accruals by £2½ billion in 2001-02. The reduction in 2001-02 mainly reflects the lower rates of income tax.

B20 Table B9 gives projections of receipts, as a percentage of GDP, over the medium term. A more detailed breakdown, in £ billion, for 1998-99 and 1999-2000 is given in table B10. Excluding the windfall tax, total receipts are estimated to rise by 6 per cent in 1998-99, which is rather faster than forecast money GDP growth of 4½ per cent. This relatively strong growth of receipts mostly reflects the effects of past Budget measures, together with the normal tendency for the receipts-to-GDP ratio to rise when GDP is growing. The growth of receipts is forecast to slow to 4 per cent next year. The slowdown in the economy (with money GDP growing by 3¾ per cent) is expected to affect corporation tax receipts in particular, following several years of rapid growth. The 1998 Budget measures, which included the introduction of quarterly tax instalments for large companies, will bring forward the response of corporation tax to the slowdown in the economy. The ratio of corporation tax to GDP increased from 2·3 per cent in 1993-94 to 3·7 per cent in 1997-98. It is forecast to fall back to 3.4 per cent over the next two years, and then to remain at about 3·5 per cent thereafter.

B21 The growth of receipts picks up from 2000-01 as the economy demonstrates stronger growth. Excluding Budget measures, the underlying receipts-to-GDP ratio rises by about 0·1 per cent a year on average over the next five years, largely reflecting the effects of real fiscal drag on income tax receipts and the fuel and tobacco escalators.

Table B9:Current receipts

	Per cent of GDP
	Outturn	Estimate			Projections
	1997-98	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04
Income tax (gross of tax credits)	9·8	10·3	10·3	10·4	10·5	10·6	10·7
Income tax credits¹	-0·4	-0·2	-0·3	-0·5	-0·7	-0·8	-0·8
of which: Working Families' Tax Credit	0·0	0·0	-0·1	-0·5	-0·6	-0·6	-0·6
Corporation tax	3·7	3·5	3·4	3·4	3·6	3·6	3·5
Windfall tax	0·3	0·3	0·0	0·0	0·0	0·0	0·0
Value added tax	6·2	6·1	6·1	6·1	6·1	6·1	6·0
Excise duties²	4·1	4·2	4·1	4·4	4·4	4·5	4·6
Social security contributions	6·3	6·5	6·3	6·2	6·2	6·2	6·2
Other taxes and royalties³	6·4	6·5	6·6	6·7	6·9	6·9	6·9
Net taxes and social security contributions⁴	36·6	37·2	36·6	36·7	37·0	37·0	37·1
Other receipts and accounting adjustments⁵	2·3	2·2	2·6	2·7	2·5	2·6	2·5
Current receipts (including windfall tax)⁶	38·9	39·4	39·2	39·4	39·5	39·6	39·7
Current receipts (excluding windfall tax)⁶	38·6	39·2	39·4	39·5	39·6	39·6	39·7
Memo:
Current receipts (£bn)⁶	315·7	334·2	345·0	364·0	385·0	405·0	425·0
¹ Mainly MIRAS (up to April 2000), and tax reliefs under the Working Families' Tax Credit (from October 1999) and the Children's Tax Credit (from April 2001) 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. Includes Climate change levy.
⁴ Includes VAT and 'own resources' contributions to EU budget. Net of income tax credits. Cash basis.
⁵ Includes tax credits (and accruals adjustments), and nets off VAT and 'own resources' contributions to EU budget.
⁶ Accruals basis.

Table B10:Current receipts: further details

	£ billion
	Outturn	Estimate	Forecast
	1997-98	1998-99	1999-00
Inland Revenue
Income tax (gross of tax credits)	79·8	87·5	90·8
Income tax credits	-2·9	-2·0	-2·8
Corporation tax¹	30·4	29·8	29·9
Windfall tax	2·6	2·6	0·0
Petroleum revenue tax	1·0	0·5	0·1
Capital gains tax	1·5	2·4	3·2
Inheritance tax	1·7	1·8	2·0
Stamp duties	3·5	4·7	5·7
Total Inland Revenue (net of tax credits)	117·5	127·3	128·9
Customs and Excise
Value added tax	50·6	51·7	54·0
Fuel duties	19·4	21·5	23·1
Tobacco duties	8·4	8·3	7·0
Spirits duties	1·5	1·6	1·6
Wine duties	1·4	1·5	1·6
Beer and cider duties	2·8	2·8	2·9
Betting and gaming duties	1·6	1·5	1·5
Air passenger duty	0·5	0·8	0·8
Insurance premium tax	1·0	1·2	1·4
Landfill tax	0·4	0·3	0·4
Customs duties and levies	2·3	2·0	1·8
Total Customs and Excise	89·8	93·4	96·2
Vehicle excise duties	4·5	4·6	4·6
Oil royalties	0·5	0·3	0·2
Business rates²	14·9	15·2	15·6
Social security contributions	51·1	54·9	55·7
Council Tax	11·0	11·8	12·8
Other taxes and royalties³	8·0	7·7	7·9
Net taxes and social security contributions⁴	297·2	315·2	321·8
Interest and dividends	4·2	4·2	3·7
Gross operating surpluses and rent	17·6	18·3	18·4
Other receipts and accounting adjustments⁵	-3·2	-3·5	1·0
Current receipts	315·7	334·2	344·3
Memo:
North Sea revenues⁶	3·3	2·6	1·2
¹Includes advance corporation tax (net of payment): Also includes North Sea corporation tax after ACT set off, and corporation tax on gains.	11·5	11·0	0·7
² Includes district council rates in Northern Ireland.
³ Net of bus fuel duty rebate . Includes money paid into the National Lottery Distribution Fund.
⁴ Includes VAT and 'traditional own resources' contributions to EU budget. Net of income tax credits. Cash basis.
⁵ Includes accruals adjustments and tax credits scored as public expenditure, and nets off VAT and 'own resources' contributions to EU budget.
⁶ North Sea corporation tax (before ACT set-off), petroleum revenue tax and royalties.

Comparison with last Pre-Budget forecast

B22 Total receipts are estimated to be £1·7 billion lower in 1998-99 than forecast at the time of the PBR, and are forecast to be £3·0 billion lower in 1999-2000.

Table B11:Changes in current receipts since the PBR

	£ billion
	1998-99	1999-00
Income tax (gross of tax credits)	0·5	-1·9
Income tax credits	0·0	0·0
Corporation tax	-1·6	-0·2
Windfall tax	0·0	0·0
Value added tax	-0·9	-1·0
Excise duties¹	-0·4	-2·4
Social security contributions	0·1	-1·3
Other taxes and royalties²	-0·2	1·8
Net taxes and NICs	-2·5	-5·0
Other receipts and accounting adjustments	0·8	1·9
Current receipts	-1·7	-3·0
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 (previously netted off excise duties).

Income tax receipts

B23 Higher receipts from self assessment and PAYE have boosted current year income tax receipts, which have been revised up by £½ billion since the PBR. The introduction of self assessment contributed to the rapid growth of income tax receipts last year. Self assessment receipts have risen a little further in 1998-99, suggesting that self assessment has led to a permanent step increase in the tax base. The lower forecast of income tax payments for 1999-2000 mostly reflects the introduction of the 10p lower rate of income tax.

Corporation tax

B24 Following weaker than expected receipts of advance corporation tax (ACT) and mainstream payments, corporation tax in 1998-99 is likely to fall short of the PBR forecast by about £1½ billion. This partly reflects lower dividends for some companies and higher than expected set off of previous ACT payments. With the abolition of ACT in April 1999, the impact on forecasts is relatively small.

VAT receipts

B25 VAT receipts have been slightly weaker than expected since the PBR, and the estimate for the current year has been revised down by £0·9 billion. The latest figures suggest a slight fall in the ratio of VAT receipts to consumer spending in 1998-99, following a slight increase in 1997-98. The projections continue to assume a modest downward trend in the VAT ratio - an assumption audited by the NAO. Compared with a flat VAT ratio, this cautious assumption reduces receipts by over £1 billion by 2003-04.

Excise duties

B26 Excise duties are expected to fall short of the PBR estimate by about £0.4 billion this year and £2·4 billion in 1999-2000.

B27 Bringing forward the tobacco duty escalator from December to March increases tax accruals. Tax accruals measure receipts at the time the product is finally sold, and this is the basis on which total current receipts are shown in Tables B9 and B10. The timing of cash receipts is also likely to change, which affects the cash figures for excise duties shown in the two tables. With the December escalator, a high proportion of the year's tobacco duty was collected in December as manufacturers anticipated the annual tax increases by accelerating clearances. In the absence of such forestalling, there is likely to be a temporary dip in cash receipts in 1999-2000. An offsetting accruals adjustment is included in the 'accounting adjustments'.

B28 The forecast of receipts from tobacco duty also takes account of new evidence, available since the PBR, that cigarette smuggling and the loss of revenue associated with it, has been growing rapidly. It is very hard to predict the extent of the future loss of receipts from smuggling. The Government is taking measures to tackle the problem - see Chapter 1.

B29 Forecast receipts from excise duties are also lower by about £ ½ billion a year because of the switch to consumption of cleaner fuels associated with the rapidly growing availability of ultra low sulphur diesel and, from the end of this year, the ban on leaded petrol.

Social security contributions

B30 Social security (national insurance) contributions have grown strongly since the PBR and the estimate for receipts in the current year has been revised up slightly. Nonetheless, the forecast for 1999-2000 has been revised down by £1·3 billion since the PBR. This partly reflects upward revisions to the costings of the 1998 Budget reforms.

Other taxes and receipts

B31 Overall, the yield from other taxes and receipts since the PBR has been much as expected. The forecast for 1999-2000 has been revised up significantly however. This reflects in part higher forecasts of capital taxes and stamp duty following a recovery in equity prices since November, together with upward revisions to business rates.

Total taxes

B32 Chart B2 shows the tax/GDP ratio, measured as total taxes and social security contributions, net of tax credits, as a percentage of GDP (see the conventions section at the end of this Annex). It is forecast to fall by a ½ percentage point next year. Apart from the windfall tax, which increased the tax ratio in 1998-99, this fall largely reflects the effects of the economic slowdown, especially on corporation tax receipts. Thereafter, the tax ratio is projected to rise (on average) by a little over 0.1 percentage points a year, mainly reflecting real fiscal drag.

Chart B2: Tax/GDP ratio

PUBLIC EXPENDITURE

Current year

B33 Table B12 shows forecasts for general government expenditure for the current year - the last of the old control regime - and changes against the PBR forecast. Control Total spending is estimated to be some £2 billion lower than planned, mainly because of lower expenditure on social security benefits (see table B19 for further details by department). This underspend is £¾ billion greater than estimated in the PBR, again reflecting lower social security spending.

Table B12:General government expenditure¹

	£ billion

	Outturn	Estimate	Change since PBR
	1997-98	1998-99	1998-99
Control Total	263·5	273·4	-0·8
Welfare to Work spending	0·1	0·7	-0·4
LA spending under the capital receipts initiative	0·2	0·7	0·0
Cyclical social security	12·8	12·3	0·1
Central government gross debt interest	29·7	29·5	0·0
Accounting and other adjustments	13·4	13·0	-0·1
Privatisation proceeds	-1·8	-0·1	0·0
GGE	317·9	329·5	-1·1
¹ Adjusted for classification change since the Pre-Budget Report.

PROSPECTS

B34 Table B13 shows the projections for public expenditure for the three years, 1999-2000 to 2001-02, covered by the Comprehensive Spending Review (CSR). These projections cover the whole public sector, using the aggregate Total Managed Expenditure (TME). TME is split into Departmental Expenditure Limits (DEL), for which three-year plans are set, and Annually Managed Expenditure (AME).

B35 Excluding classifications changes, DEL is unchanged from the CSR apart from bringing forward £¼ billion of expenditure under the Capital Modernisation Fund from 2001-02 to 1999-2000. However the components of AME have been reviewed. Since the PBR there has been a downward revision to next year's forecast of social security benefit expenditure. This is in spite of the change in the unemployment assumption, and reflects consistently lower outturns over the past two years which have changed the view of future trends. Debt interest is lower, reflecting both lower interest rates and RPI inflation. The AME margin has been set at its CSR level. The overall effect is to reduce AME by £4·7 billion, £4·2 billion and £5·4 billion in 1999-00, 2000-01 and 2001-02 respectively. This decrease feeds directly through into lower TME.

B36 Current expenditure for 1999-2000 to 2001-02 is now lower than in the CSR (after adjusting for classification changes), because of the forecast reductions made to AME. The average real growth rate over the CSR period is 2¼ per cent, as set by the CSR in July 1998. As shown in the CSR, the ratio of net investment to GDP doubles between 1998-99 and 2001-02. (The levels of net investment are lower than shown in the CSR, but this mainly reflects ESA95 classification changes, which have substantially increased the estimated level of depreciation.)

B37 Chart B3 shows the ratio of TME to GDP. The ratio rises very slightly over the next three years, reflecting the higher levels of public investment.

Table B13:Total Managed Expenditure

					Changes since PBR
	Forecast	Forecast	Forecast	Forecast	Forecast	Forecast	Forecast
	1998-99	1999-00	2000-01	2001-02	1999-00	2000-01	2001-02
Departmental Expenditure Limits	168·0	179·2	189·7	199·5	0·2	0·0	-0·2
Annually Managed Expenditure
Social Security Benefits¹	93·5	99·1	101·5	106·4	0·3	1·0	0·6
Housing Revenue Account subsidies	3·7	3·4	3·5	3·5	-0·1	0·0	0·0
Common Agricultural Policy	2·6	2·4	2·7	2·9	-0·2	0·2	0·1
Export Credits Guarantee Department	-0·2	0·5	0·8	0·8	0·0	0·0	0·0
Net Payment to EC Institutions²	3·5	2·7	2·6	2·9	-0·1	-0·1	-0·1
Self-financing Public Corporations	-0·2	-0·1	-0·2	-0·3	0·1	0·1	0·1
Locally Financed Expenditure	16·1	17·0	18·3	19·8	0·0	0·1	0·2
Net Public Service Pensions	5·1	6·2	6·1	6·2	-0·1	-0·4	-0·7
National Lottery	1·4	2·6	2·7	2·8	0·0	0·0	0·0
Central government gross debt interest	29·5	26·0	27·6	27·1	-2·4	-0·8	-0·9
Accounting and other adjustments	8·3	9·3	11·7	12·9	-0·2	-1·6	-1·6
AME Margin		1·0	2·0	3·0	-2·0	-2·5	-3·0
Annually Managed Expenditure	163·4	170·0	179·1	187·8	-4·7	-4·2	-5·4
Total Managed Expenditure	331·4	349·2	368·8	387·3	-4·4	-4·2	-5·6
of which:
Public sector current expenditure	313·5	328·9	346·1	362·0	-3·8	-3·3	-4·5
Public sector net investment	3·4	5·5	7·5	9·6	-0·7	-0·9	-1·1
Public sector depreciation	14·6	14·8	15·2	15·7	0·0	0·0	0·0
¹ Adjusted since the PBR to take account of the new NAO-audited assumption for unemployment-related social security spending, which raises social security spending by an estimated £1 billion in 1999-2000, £2 billion in 2000-01 and £2¼ billion in 2001-02.
²Net payments to EC institutions exclude the UK's contribution to the cost of EC aid to non-Member States (which is attributed to the aid programme). Net payments therefore differ from the UK's net contribution to the EC Budget, latest estimates for which are (in £ billion)
	1998-99	1999-00	2000-01	2001-02
Figures from 1999-2000 are trend estimates	4·0	3·2	3·4	3·8

B38 The CSR plans extend only to 2001-02. The spending totals for the last two years of the projection period are illustrative. They assume that real current expenditure continues to grow by 2¼ per cent a year and net investment continues to rise as a share of GDP (from 1 per cent in 2001-02 to 1½ per cent in 2003-04).

Chart B3: Projections of Total Managed Expenditure

Social security

B39 The growth in real spending on social security benefits has slowed during the 1990s, and in 1997-98 spending fell by 1 per cent. Real expenditure is expected to be about constant in the current year, but is projected to rise by 2¾ per cent on average over the three CSR years. As noted above, this projection is based on an assumption of unemployment following the average of outside forecasts. This assumption has been audited by the NAO.

Debt interest

B40 Central government gross debt interest is estimated at £29·5 billion, or 3½ per cent of GDP, for 1998-99. It is expected to fall quite sharply next year in response to a lower average level of interest rates and lower inflation. The forecasts are lower than those shown in the PBR as interest rates are assumed to be lower. (The audited assumption is that interest rates move in line with market expectations of future rates, which have come down substantially.) This reduces interest payments both on existing debt, and on debt which is refinanced at the current market rate. It also reduces the all-items RPI inflation rate, which is used to calculate the uplift on indexed gilts.

Accounting adjustments

B41 The main accounting adjustments - those items within TME but outside DEL which are not shown separately in table B13 - are shown in table B14. The total increases because of the introduction from October 1999 of the Working Families' Tax Credit.

Table B14:Accounting and other adjustments¹

	£ billion
	1998-99	1999-00	2000-01	2001-02
Non-trading capital consumption	7·1	7·3	7·6	7·8
VAT refunded on general
government expenditure	5·1	5·3	5·5	5·8
EC contributions	-6·2	-5·8	-5·7	-5·8
Income tax credits	2·0	2·9	5·3	5·5
of which Working Families' and Disabled Persons' Tax Credit:	0·0	1·3	5·1	5·4
Other spending in AME	0·3	0·2	0·2	0·3
Adjustments for public corporations	2·9	3·4	3·8	3·9
Intra-public sector debt interest	-2·2	-2·0	-2·0	-1·9
Capital transfer receipts	-0·2	-0·2	-0·2	-0·2
Financial transactions in DEL and AME	-0·5	-1·9	-2·8	-2·5
Other accounting adjustments	0·1	0·0	0·0	0·0
Total	8·3	9·3	11·7	12·9
¹ Explanatory notes for each line of the accounting and other adjustments are included in the conventions section.

FORECAST ERRORS AND RISKS

B42 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 (i.e. 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 £8½ billion at today's prices. The error tends to grow as the forecast horizon lengthens (see table B13 on page 122 of the PBR). Much of this error arises from errors in the forecasts of GDP.

B43 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 0.4 per cent of GDP in the first year (equivalent to about £3½ billion) and lower or higher by a further 0.3 per cent of GDP (£2½ billion) in the second year.

B44 Such errors in short-term growth forecasts may have only a temporary effect on the public finances. For a given path of trend output, higher or lower growth in the short term will be followed by lower or higher growth later on, and the public finances may be little affected on average over the cycle. However, errors in estimating the cyclical position of the economy in relation to its trend - the output gap - will have a permanent effect on prospects.

B45 It is for this reason that Chapter 2 of the EFSR illustrates the effect of uncertainty over the cyclical position of the economy by showing a cautious case in which the output gap is 1 per cent higher than the central view. On this assumption, the Government would still remain on track to meet the golden rule.

CAPITAL SPENDING AND PRIVATE FINANCE INITIATIVE

Capital spending

B46 On national accounts definitions, public sector capital expenditure has been falling in recent years. However, these definitions exclude capital spending by the private sector under the Private Finance Initiative (PFI), which also benefits public services and is discussed in the next section.

Table B15:Public sector capital expenditure

	£ billion
	1998-99	1999-00	2000-01	2001-02
CG spending and LA support in DEL	11·0	12·3	14·3	16·5
Locally financed spending	0·7	0·6	0·7	0·7
National Lottery	1·1	2·2	2·3	2·4
Public corporations¹	4·2	4·3	4·3	4·5
Other capital spending in AME	1·0	0·7	0·9	1·0
Allocation of Reserve	0·0	0·1	0·2	0·2
Public sector gross investment²	18·0	20·3	22·7	25·4
Less depreciation	-14·6	-14·8	-15·2	-15·7
Public sector net investment²	3·4	5·5	7·5	9·6
Proceeds from the sale of fixed assets³	3·8	3·8	3·8	3·8
¹ Public corporations' capital expenditure is partly within DEL and partly within AME.
² This and previous lines are all net of sales of fixed assets.
³ Projections of total receipts from the sale of fixed assets by public sector. These receipts are taken into account in arriving at public sector gross and net investment, which are net of sales of fixed assets.

Private Finance Initiative

B47 Under the Private Finance Initiative (PFI) the public sector purchases services from a private sector partner. In addition to requiring capital investment to be undertaken by the private sector, its ability to be innovative and manage risks appropriately allocated to it can result in a specified level of service at a price that represents value for money.

B48 The PFI has now become an established method of delivering many public services which require significant investment in capital assets. Projects with a combined capital value of around £4 billion have been signed since the General Election in such diverse areas as schools, colleges, hospitals, local authorities, defence, IT and property management. Approval of a PFI scheme depends on a thorough assessment of the lifetime costs of both providing and maintaining the underlying asset and the running costs of delivering the required service. The PFI provides considerable investment opportunities for the private sector, while, in return, the contractual relationship with the public sector ensures the ongoing delivery of cost effective and quality services.

B49 The Government is committed to developing PFI and other partnership arrangements with the private sector to enhance further the delivery of public services and ensure the delivery of a higher sustainable level of public sector investment. The Government wants to exploit all commercial potential and spare capacity in public sector assets through a sensible balance of risk and reward. A review of the progress made in the delivery of PFI and other Public Private Partnerships was announced in November 1998. Its purpose is to assist the Government to maintain the momentum for improvement in PFI and to extend this to other Public Private Partnerships, such as the Wider Markets Initiative which was launched in July 1998.

B50 Table B16 shows a breakdown by Department of the estimated public sector investment resulting from both signed contracts and those expected to be signed over the next three years. From 1999-000 to 2001-02, some £11 billion of new investment is expected as a result of PFI. Under PFI, the public sector contracts for services not assets, and capital investment is only one of the activities undertaken by the private sector in order to supply these services. The figures in Table B16 therefore do not reflect the total value of the contracts.

Table B16:Private Finance Initiative: estimated capital spending by the private sector

	£ million
	1998-99	1999-00	2000-01	2001-02
Defence	320	105	405	150
Foreign Office and Overseas Development	24	29	4	2
Agriculture¹	18	56	21	8
Trade and Industry	51	88	21	7
Environment, Transport and the Regions²	686	986	886	735
Education and Employment³	11	23	28	9
Home Office	67	257	331	266
Legal Departments	18	37	15	9
Culture, Media and Sport	1	18	11	2
Health	310	610	740	690
Social Security	87	264	166	20
Scotland	263	557	371	60
Wales	24	89	50	19
Northern Ireland	17	48	62	21
Chancellor's Departments	38	36	22	20
Local authorities⁴	250	600	1,000	1,000
Total	2185	3803	4133	3018
¹ Includes Forestry Commission.
² In June 1998 the Deputy Prime Minister announced that the CTRL deal was being restructured. The figures above reflect the current most likely profile for private sector investment although the profile may change as a result of on-going negotiations.
³ Excludes PFI/PPP activity in the further and higher education sectors which are classified to the private sector. For further and higher education, the total estimated capital value of major PFI/PPP projects which have signed or are expecting to sign is £24 million in 1998-99 and £129 million in 1999-2000.
⁴ PFI activity in local authority schools is included here. Also includes local authority information for Scotland and Wales.

B51 Table B17 shows a forecast of the estimated payments by the public sector flowing from new private investment over the next twenty five years. Actual expenditure will depend on the details of the payment mechanism for each contract.

Table B17:Private Finance Initiative: estimated payments under PFI contracts

	£ million		£ million
1999-00	1456	2013-14	3423
2000-01	1947	2014-15	3373
2001-02	2532	2015-16	3139
2002-03	3019	2016-17	3159
2003-04	3338	2017-18	3188
2004-05	3608	2018-19	2722
2005-06	3548	2019-20	2696
2006-07	3659	2020-21	2692
2007-08	3714	2021-22	2624
2008-09	3641	2022-23	2556
2009-10	3539	2023-24	2592
2010-11	3511	2024-25	2545
2011-12	3569	2025-26	2363
2012-13	3562	2026-27	2091

Asset sales

B52 Table B18 shows estimated receipts from asset and loan sales for 1998-99, and projections to 2001-02. Planned sales of fixed assets by central government are set out in their Departmental Investment Strategies, and total £1 billion per year over the next three years.

B53 The figures for sales of financial assets include proceeds from the sale of British Energy debt and from the Public Private Partnerships for Belfast port, National Air Traffic Services and the Defence Evaluation and Research Agency.

Table B18:Loans and sales of assets

	£billion
	Outturn	Estimate	Projections
	1997-98	1998-99	1999-00	2000-01	2001-02
Sales of fixed assets
Ministry of Defence: sale of married quarters	0·7
Department of Social Security: PRIME and Newcastle estate	0·1	0·4
Other Central Government	0·8	1·3	1·0	1·0	1·0
Local Authorities	2·5	2·2	2·8	2·8	2·8
Total sales of fixed assets	4·1	3·8	3·8	3·8	3·8
Loans and sales of financial assets
Sale of Housing Corporation and Housing for Wales loan portfolios	0·7
Sale of student loans portfolio	1·0	1·0	2·1
Other loans and sales of financial assets	0·3	-1·5	0·0	-0·7	-1·1
Total loans and sales of financial assets	2·0	-0·5	2·1	-0·7	-1·1
Total receipts from sales of assets	6·1	3·3	5·9	3·0	2·7

DEPARTMENTAL PROGRAMMES

B54 Table B19 analyses the Control Total by department, showing changes from previous plans as published in the March 1998 Financial Statement and Budget Report. It also shows total changes from plans inherited from the previous Government, published in the March 1997 Public Expenditure Statistical Analyses. Central government support for local authorities and the financing requirements of nationalised industries have been attributed to the appropriate departments; departmental groupings are defined at the end of the annex.

Table B19:Control Total by department

	£ million¹
	Outturn	Estimated Outturn	Changes since² March 1998		Changes since² March 1997
	1997-98	1998-99	1997-98	1998-99	1997-98	1998-99
Education and Employment	14290	14360	-400	1300	330	960
Health	35320	37640	-20	470	400	1970
of which NHS	34680	36860	0	350	340	1770
DETR	12380	11990	-210	-100	-320	-80
DETR- Local government³	31370	32760	0	0	0	860
Home Office	6730	7020	-90	120	-90	180
Legal departments	2640	2670	-50	30	-30	30
Defence	20920	22550	-230	300	-220	300
Foreign Office	1080	1120	-10	60	10	40
International Development	2240	2430	-20	140	50	130
Trade and Industry	2820	2700	-230	50	-220	100
Agriculture, Fisheries and Food	3510	3420	-110	50	-240	40
Culture, Media and Sport	910	920	0	10	20	0
Social Security	79230	81740	-390	-1920	-560	-1340
Scotland	14420	14940	-140	310	40	490
Wales	6820	7110	-140	140	-80	230
Northern Ireland	8140	8540	-140	130	-90	280
Chancellor's departments	3100	3190	-80	140	10	110
Cabinet Office	930	1350	-40	50	-110	10
European Communities	2050	3460	270	1020	-200	1070
LASFE	14300	14600	600	600	1100	1100
Reserve				-3000	-2300	-5000
Carry forward of underspending			750	-750	2250	-2250
Allowance for shortfall		-1200	400	-1200	0	-1200
Control Total	263200	273400	-200	-2000	-200	-2000
¹ All figures are rounded to the nearest £10 million except for the Reserve, Control Total and Local Authority self-financed expenditure (LASFE) which are rounded to the nearest £100 million.
² Previous plans adjusted for transfer and classification changes and for the carry forward of £750 million from the 1997-98 underspend into the 1998-99 Control Total.
³ Includes payments of Revenue Support Grant and National Non-domestic Rates to English local authorities. These finance, at local authorities' discretion, a range of local services, including education, social services and other environmental services.

B55 In the July 1997 Budget the Government announced that it would work within the previous Government's plans for the first two years of the Parliament. Taking 1997-98 and 1998-99 together, it is estimated that spending will undershoot these plans by £2 billion.

B56 The main differences from the March 1997 plans are as follows:

The extra resources for the NHS and schools announced since the General Election are reflected in the lines for local government and the territorial departments as well as those for Education and Health.
The increases in the Education and Employment line also reflect a re-profiling of the sale of student loans and take up of end-year flexibility.
A substantial underspend is expected on social security expenditure, which largely reflects lower than expected claimants.
The increase in 1998-99 for net payments to European Community Institutions is largely due to a change introduced in 1998 to the financing practice for the EC Budget. Adjustments to be made in respect of the UK's gross contributions to the 1998 EC Budget, which under earlier practice would have been made in 1999, were drawn forward into 1998.

Public borrowing by Sector

B57 The monthly outturns for central government borrowing are measured from the cash flows into and out of central government's funds and accounts, after consolidation. Table B21 sets out the 1997-98 outturn and 1998-99 and 1999-2000 forecasts for central government borrowing in terms of this cash flow presentation, which is used in the ONS monthly press release

Table B21: Central government transactions

	£ billion
	1997-98	1998-99		1999-00
		Last Budget	Latest
	Outturn	forecast²	estimate	Forecast
Cash receipts
Inland Revenue¹	117·6	126·1	127·5	130·3
Customs and Excise¹	89·8	95·6	93·4	96.2
Social security	49·3	52·0	53·3	54·0
Interest and dividends	9·5	8·7	9·4	8·7
Other	20·9	19·9	20·2	18·7
Total cash receipts	287·0	302·3	303·8	307.9
Cash outlays
Investment payments	27·7	27·6	27·1	24·6
Privatisation proceeds	-1·8	0·0	-0·1	-0·4
Net departmental outlays	263·7	277·5	272·7	288·5
Total cash outlays	289·6	305·1	299·8	312·8
Net cash requirement (own account)³	2·6	2·8	-4·1	4.9
less Financial transactions:
Net lending to private sector and rest of world	0·4	-0·2	-0·5	1·2
Net acquisition of UK company securities	1·6	0·0	0·1	0·4
Accounts receivable/payable	-0·4	-1·8	-0·3	-4.0
Adjustment for interest on gilts	2·4	2·5	2·4	1·4
Other financial transactions	0·4	0·8	0·4	0·4
Net borrowing	7·0	4·0	-1·9	4·2
¹ Payments to the Consolidated Fund.
² Restated on ESA95 basis.
³ Total cash outlays (excluding on-lending to local government and public corporations) minus total cash receipts. Previously known as Central Government borrowing requirement on own account (CGBR(O)).

B58 In 1998-99 estimates for both net borrowing and the own account net cash requirement are substantially lower than the forecasts in the last Budget. The cash forecast is almost £7 billion lower, partly because of lower cash outlays (down £5½ billion) and partly higher cash receipts (up £1½ billion). The reduction in net borrowing is slightly smaller than that to the cash requirement because of changes to the financial transactions - particularly a reduction in accounts receivable, reflecting lower accruals of tax relative to cash for tobacco duty and business rates.

B59 For 1999-2000, the forecast for net borrowing is £6 billion higher than in the current year; but with changes to the financial transactions, own account net cash requirement is £9 billion higher. Net lending includes a larger sale of student loans in 1999-2000 than 1998-99. The adjustment for interest on gilts is down because lower inflation in 1999-2000 reduces the uplift on index-linked gilts. Higher accruals of tax relative to cash are forecast in 1999-2000, particularly for tobacco duty and business rates.

B60 Table B22 updates the financing arithmetic for 1998-99 to allow for the latest central government net cash requirement forecast, and sets out the financing arithmetic for 1999-2000.

B61 The gilts issuance programme for 1998-99 was revised in November 1998, following the November PBR. However at that stage, gilt sales in 1998-99 had already reached £6·5 billion, against a revised gilts financing requirement in the PBR of £6·4 billion. The Government announced that, although there would be no further issuance of conventional gilts in 1998-99, the remaining index-linked auctions would take place as planned. If this resulted in excess gilt sales, such sales were necessary in order to meet the commitment to a minimum issuance of £2·5 billion (cash) of index-linked gilts in 1998-99 (and in future years) in support of the move to index-linked auctions. The latest view of the financing arithmetic in Table B22 shows forecast excess gilt sales of £2·3 billion in 1998-99. These excess sales will be unwound in 1999-2000 by a residual adjustment which reduces the initial requirement for gilt sales in that year.

B62 The requirement for gilt sales in 1999-2000 is further reduced by the increase in the level of the stock of Treasury bills and other short-term debt which will be required if, as planned, the Debt Management Office (DMO) take over responsibility for cash management in that year. However this is more than offset by the additional requirement in 1999-2000 to finance investment in the foreign currency reserves which has previously been financed by issuance of Euro Treasury bills. The main details of the debt management plans for 1999-2000 are contained in the remits to the UK Debt Management Office and National Savings announced on 9 March. Full details, including the remits, will be published in the 1999-2000 Debt Management Report.

Table B22: Financing requirement forecasts for 1998-99 and 1999-2000

		£ billion
	1998-99				1999-00
	March	June	November	March	March
	1998	1998	1998	1999	1999
	Original Remit	EFSR	PBR	Budget	Budget
Central government net cash requirement	3·7	3·5	-2·1	-2·7	6·2
plus expected net financing for reserves¹	0·0	0·0	0·0	0·0	2·4
plus expected gilt redemptions	16·7	16·8	16·8	16·92	14·8
plus residual unwinding excess gilt sales
from previous financial year	-5·1	-8·2	-8·2	-8·2	-2·3
Financing requirement	15·2	12·1	6·5	6·1	21·0
less net National Savings inflow	1·0	0·5	0·1	0·2	0·1
less increase in T-bills and other short-term debt3	0·0	0·0	0·0	0·0	3.6
Gilt sales required	14·2	11·6	6·4	5·8	17.3
of which:
assumed gilt sales: