Annex B: The Public Finances (Part Two)

B40.  Income tax receipts in 2001-02 are expected to be around £110 billion, almost £2 billion lower than forecast in the Budget. Around half of this shortfall relates to revisions to the data for last year, including a reallocation from income tax to capital gains tax (both of which are collected under self assessment).

B41.  The majority of the remaining shortfall in 2001-02 relates to bonuses. At the time of the Budget it was not possible to give a full explanation for the high levels of income tax receipts observed in 1999-00 and 2000-01. It is now apparent that a large proportion of these additional receipts were related to bonus payments made by financial companies, particularly to people at the top of the earnings distribution, increasing the average rate of tax paid on these earnings. In the Budget forecast, PAYE receipts from bonus payments were assumed to continue at 2000-01 levels. However, the decline in financial sector profits, evidenced by lower than expected corporation tax receipts from that sector (see Box B2) suggests that lower bonuses are likely in 2001-02. The PAYE forecast includes an allowance of

Box B2: Corporation tax receipts in 2001-02

The timing of corporation tax receipts in recent years has been heavily influenced by the reforms announced in Budget 1998, which abolished advance corporation tax, introduced a four-year transition to instalment payments for large companies, and cut tax rates.

Small and medium-sized companies should now pay all their tax liability for an accounting period nine months after the end of that period. Large companies now pay most of their tax in four quarterly instalments, based on their own estimates of their tax liability for the period, starting in the seventh month of the accounting period. They pay a fixed percentage of the estimated liability for the year in each instalment. During the transition period, they will also make a balancing payment nine months after the end of their accounting period. The percentages are:
Year 11 4 instalments of 15 per cent; balancing payment 40 per cent
Year 2 4 instalments of 18 per cent; balancing payment 28 per cent
Year 3 4 instalments of 22 per cent; balancing payment 12 per cent
Year 4 + 4 instalments of 25 per cent

One result of the new system is that tax payments respond much more quickly to changes in companies' views of their profits and tax liabilities. Large companies with calendar year accounting periods paid their first instalment in respect of their 2001 profits in July 2001, and their second in October. These instalments were expected to show growth of about 30 per cent on the corresponding payments for last year in the Budget 2001 forecast, partly because of the increase in the instalment percentage and partly from profits growth. But actual receipts of instalments this year have shown only modest growth on last year, implying that companies are expecting lower tax liabilities this year than last.

Repayments of corporation tax have also been much higher than expected in the first seven months of the year. By contrast, small company payments have been higher than forecast in the Budget.

As a result of the lower than expected level of net receipts in the first seven months of the year, receipts in 2001-02 as a whole are now expected to be about £41/2 billion lower than in the Budget forecast.

1. Year 1 is accounting period ending on or after 1 July 1999.

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around £1 billion for the impact of lower bonuses, although this is subject to a high degree of uncertainty. Consistent with the projections for financial company profits, the bonuses are expected to recover later in the forecast period, and to make a small positive contribution to PAYE receipts, relative to the Budget forecast, from 2004-05 onwards.

B42.  Self assessment receipts are expected to be slightly weaker than forecast in the Budget until 2004-05, reflecting lower interest rate projections and lower growth in self employment incomes. Other income tax receipts are expected to be somewhat lower in 2002-03 and 2003-04, before returning towards the levels forecast in the Budget. The main factors determining this profile are lower interest rates and recent outturns.

Non-North Sea corporation tax

B43.  Non-North Sea corporation tax in 2001-02 is expected to be around £4 ¼ billion below the Budget forecast. Forecast receipts from industrial and commercial companies are driven mainly by their projected profits. Projected profits growth in 2001-02 and 2002-03 is lower than in the Budget, while growth in 2003-04 is higher. Higher levels of tax losses brought forward slow the recovery in corporation tax receipts, but by 2005-06, receipts from both small companies and instalment payers are similar to the levels projected in the Budget.

B44.  The Pre-Budget Report forecast assumes that, apart from life insurance companies, the fall in financial company taxable profits implied by their instalment payments this year is temporary, and that profits recover in 2002 and 2003. From 2004 onwards, financial companies taxable profits are assumed to grow slightly faster than money GDP as profits return to a cautious view of their long-term trend. In addition, financial companies' 1999 assessments showed significantly lower levels of deductions against income than assumed in the Budget. Projecting this outturn forward implies higher tax yields for a given level of taxable profits. Hence, receipts from financial companies are forecast to recover to around their Budget levels in 2003-04, and to exceed them slightly in later years.

B45.  Life insurance companies' profits are highly dependent on asset prices. The much lower starting point for the audited assumption for equity prices leads to much lower receipts throughout the forecast period.

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North Sea revenues

B47.  North Sea revenues are expected to be £1/2-3/4 billion a year lower than forecast in the Budget projections between 2001-02 and 2003-04. This mainly reflects a reduction in the oil price forecast relative to the Budget of around 6 per cent from 2002-03 onwards.

Capital taxes

B48.  As described in paragraph B5, capital taxes receipts are much lower than Budget projections because of the lower equity price assumption. The 2000-01 outturn for capital gains tax was £3.2 billion - around £0.3 billion higher than forecast in the Budget, reflecting the reallocation from income tax referred to in paragraph B40. Receipts are expected to fall slightly in 2001-02 reflecting the taper reforms introduced in Budget 2000. For 2002-03, a larger reduction to £13/4 billion is now forecast, arising in part from the maturing of the taper, but also from the sharp fall in equity prices in 2001-02 which impacts on receipts a year later. Inheritance tax receipts for 2000-01 were £2.2 billion, as forecast in the Budget. However, recent outturns have been higher than predicted, resulting in a forecast for 2001-02 of around £21/2 billion.

Stamp duty

B49.  The outturn for stamp duty receipts in 2000-01 was £8 ¼ billion, the same as the Budget forecast. However, 2001-02 receipts are now expected to be £7½ billion - over £1/2 billion lower than the Budget forecast - as the reduction in equity prices and volumes more than offsets higher than anticipated house prices. Following this, modest increases in receipts in subsequent years are forecast, though these are much lower than the Budget, mainly because of the lower equity price assumption.

VAT receipts

B50.  VAT receipts in 2001-02 are expected to be broadly in line with the Budget forecast. The forecast of VAT revenues in later years continues to be governed by the NAO audited assumption that, after allowing for the effects of VAT measures, the ratio of VAT receipts to consumer spending declines gradually, by 0.05 percentage points a year. This assumption, combined with the Pre-Budget Report forecast of reduced growth in consumers' expenditure from 2002, means that VAT receipts fall from their Budget levels by around £1/4 billion in
2002-03.

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Excise duties

B51.  Excise duties in 2001-02 are expected to be slightly lower than forecast in the Budget. Although actual receipts for tobacco and road fuel duties were significantly weaker in the first half of 2001-02 than in 2000-01 (see table B12), they are expected to recover during the remainder of the year. The introduction of anti-forestalling measures in March 2001 means that receipts are much more evenly spread across the year, boosting receipts in the latter half relative to earlier years. Similarly, road fuel receipts in the latter half of 2000-01 were unusually low because of the negative forestalling associated with the Budget 2001 duty cuts. The current forecast assumes that duties will be increased in line with inflation, and that taxable quantities released in March will return to normal levels. However, weaker than expected outturn receipts have resulted in lower full year forecasts for road fuels.

Other indirect taxes

B52.  Revised assumptions about the timing of CCL payments have reduced the first year 2001-02 cash forecast by around £1/4 billion. Forecasts for future years' receipts have been left unchanged and these will be reviewed for the Budget in the light of latest outturns for this new tax. The events of 11 September have also reduced air passenger duty revenues, although there remains considerable uncertainty as to how long receipts will be affected by the current downturn in passenger numbers.

Table B11: Current receipts

£ billion
Outturn Projections
2000-01 2001-02 2002-03
Inland Revenue
Income tax (gross of tax credits) 105.9 109.7 116.1
Corporation tax1 32.4 33.3 35.0
Tax credits -5.2 -7.6 -9.0
Petroleum revenue tax 1.5 1.4 1.4
Capital gains tax 3.2 2.9 1.8
Inheritance tax 2.2 2.4 2.5
Stamp duties 8.2 7.4 7.7
Social security contributions 60.6 64.3 65.7
Total Inland Revenue (net of tax credits) 208.9 213.8 221.1
Customs and Excise
Value added tax 58.5 61.3 63.7
Fuel duties 22.6 22.2 23.0
Tobacco duties 7.6 7.8 7.7
Spirits duties 1.8 1.9 2.0
Wine duties 1.8 2.0 2.0
Beer and cider duties 3.0 3.0 3.1
Betting and gaming duties 1.5 1.4 1.3
Air passenger duty 1.0 0.8 0.8
Insurance premium tax 1.7 1.8 1.8
Landfill tax 0.5 0.5 0.5
Climate change levy 0.0 0.6 1.0
Aggregates levy 0.0 0.0 0.2
Customs duties and levies 2.1 2.1 2.3
Total Customs and Excise 102.2 105.4 109.6
Vehicle excise duties 4.5 4.5 4.7
Oil royalties 0.5 0.5 0.5
Business rates2 17.3 18.1 18.4
Council tax 14.2 14.8 15.8
Other taxes and royalties3 9.0 9.6 10.3
Net taxes and social security contributions4 356.5 366.7 380.4
Accrual adjustments on taxes 2.3 0.3 0.2
less own resources contribution to EU budget -6.3 -5.8 -5.4
less PC corporation tax payments -0.1 -0.1 -0.2
Tax credits5 5.2 6.1 6.5
Interest and dividends 5.8 4.3 4.0
Other receipts 19.0 19.7 20.7
Current receipts 382.2 391.2 406.2
Memo:
North Sea revenues6 4.3 5.4 5.2


1 Includes advance corporation tax (net of repayments):  
Also includes North Sea corporation tax after ACT set off, and corporation tax on gains.
Gross of R&D tax credit (zero in 2000-01, £0.1 billion in 2001-02) and tax credit for cleaning contaminated land sites (£50 million in 2001-02) which are scored within the tax credits line.
2 Includes district council rates in Northern Ireland paid by business.
3 Includes money paid into the National Lottery Distribution Fund.
4 Includes VAT and 'traditional own resources' contributions to EU budget. Net of tax credits. Cash basis.
5 Excludes Children's Tax Credit, and other tax credits which score as a tax repayment in the national accounts.
6 Consists of North Sea corporation tax (before ACT set-off), petroleum revenue tax and royalties.

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Table B12: Net taxes and social security contributions

 
£ billion
Percentage change on 2000-01
  Outturn¹  

Outturn

  
Apr-Oct Nov-Mar 2001-02 Apr-Oct Nov-Mar Full year
Inland Revenue
Income tax and capital gains tax2 56.9 48.3 105.2 3.9 -1.9 1.2
Corporation tax3 23.2 9.9 33.1 6.5 -6.8 2.2
Petroleum revenue tax 0.9 0.5 1.4 0.6 -20.6 -8.4
Inheritance tax 1.4 1.0 2.4 7.1 11.6 8.9
Stamp duties 4.4 3.0 7.4 -11.9 -5.0 -9.2
Social security contributions 36.8 27.4 64.3 7.3 4.3 6.0
Total Inland Revenue (net of tax credits) 123.7 90.1 213.8 4.7 -0.8 2.3
Customs and Excise
Value added tax 36.0 25.3 61.3 5.1 4.5 4.8
Fuel duties 12.9 9.4 22.2 -3.2 0.4 -1.7
Tobacco duties 4.6 3.2 7.8 -4.3 11.6 1.6
Alcohol duties 3.9 3.0 6.9 3.6 3.4 3.5
Other Customs duties and levies 4.1 3.0 7.1 5.7 6.8 6.2
Total Customs and Excise 61.5 43.8 105.4 2.4 4.1 3.1
Vehicle excise duties 2.7 1.8 4.5 -5.5 14.9 1.9
Oil royalties 0.3 0.3 0.5 7.5 6.3 6.9
Business rates3 11.3 6.8 18.1 -1.6 16.2 4.5
Council tax4 9.9 4.9 14.8 6.5 1.3 4.7
Other taxes and royalties4 5.4 4.2 9.6 3.4 12.3 7.1
Net taxes and social security contributions5 214.8 151.9 366.7 3.6 1.8 2.9

1 Provisional.
2 Net of income tax credits.
3 Net of company tax credits.
4 Includes money paid into the National Lottery Distribution fund.
5 Includes VAT and 'traditional own resources' contributions to EU budget. Net of income tax credits. Cash basis.

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PUBLIC EXPENDITURE

B53.  Table B13 shows projections for public expenditure for the three years covered by the 2000 Spending Review. The projections cover the whole public sector using the aggregate Total Managed Expenditure (TME). As explained in Chapter 6, TME is split into DEL and AME.

Table B13: Total Managed Expenditure 2000-01 to 2003-04

£ billion
Outturn Projections
2000-01 2001-02 2002-03 2003-04
Departmental Expenditure Limits
Resource Budget 170.8 187.6 201.3 211.9
Capital Budget 20.1 24.9 28.3 33.2
Total Departmental Expenditure Limits 190.9 212.5 229.6 245.1
Annually Managed Expenditure
Departmental AME
Social Security Benefits 99.2 105.5 109.3 115.1
Housing Revenue Account subsidies 3.2 4.6 4.4 4.2
Common Agricultural Policy 2.7 4.5 2.7 2.8
Export Credits Guarantee Department 1.2 0.9 0.6 0.6
Self-financing public corporations
capital expenditure 1.4 1.1 1.3 1.1
Net public service pensions 4.9 5.3 5.4 5.8
National Lottery 1.9 2.1 2.2 2.3
Other programme expenditure 0.2 0.2 0.0 -0.1
Non-cash items:
Depreciation 7.1 8.1 9.l 9.6
Cost of capital charges 13.9 13.6 14.1 14.6
Provisions and other charges 4.9 -0.2 1.8 2.2
Total departmental AME1 140.4 145.6 151.0 158.1
Other AME:
Net payments to EC institutions² 3.7 0.7 2.1 2.3
Locally financed expenditure 18.3 19.3 20.2 21.2
Central government gross debt interest3 26.1 22.2 21.4 23.2
Accounting and other adjustments -15.9 -6.9 -7.3 -7.1
Total other AME 32.2 35.4 36.4 39.6
AME Margin 0.0 0.2 1.2 1.5
Annually Managed Expenditure 172.6 181.1 188.7 199.2
Total Managed Expenditure 363.5 393.7 418.2 444.3
of which:
Public sector current expenditure 344.5 367.6 389.4 411.1
Public sector net investment 6.3 12.9 14.8 18.6
Public sector depreciation 12.7 13.2 14.0 14.6

1 Including non-cash items.
2 Net 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):
 2000-01
 2001-02
 2002-03
 2003-04
 4.3
 1.4
 3.0
 3.2
The trended forecast for 2001-02 is £3.1 billion
3 In Budget 2001, and previous documents, central government gross debt interest was defined as payments gross of payments to public corporations. In line with changes introduced in the 2001 National Accounts these are now stated net of payments to public corporations. Payments from central government to public corporations are now recorded in the adjustments for public corporations line in the accounting adjustments (see Table B15). Debt interest payments on a net basis are around £0.4 billion a year lower than on a gross basis.

B54.  The Pre-Budget Report is an interim report on the public finances. For this purpose, in line with the usual convention, TME has been increased in future years to accommodate the Pension Credit and other AME measures, by £0.5 billion in 2002-03 and £1.7 billion in 2003-04, but otherwise remains unchanged. Within the total for TME in 2002-03 £1 billion has been reallocated from lower debt interest payments in AME to resource DEL to fund additional spending on health. The overall total for DEL is assumed to be fully spent. Within that total, to cover End Year Flexibility drawdown so far, there is an allowance for shortfall. It is assumed that over the year underspends will offset the drawdown of End Year Flexibility. Forecasts of individual AME programmes have been reviewed for this Pre-Budget Report and any changes have been offset in the margin. Again, in line with the convention, the additions to the winter fuel payment in the current year have been deducted from the margin.

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B55.  The main economic assumptions underpinning the AME projections are set out in Table B3. In particular, they assume that UK claimant unemployment will increase slightly from the recent level of 0.95 million (the average of the three months ending in October) to 1.14 million in 2003-04, in line with the average of independent forecasts (see Box B1).

B56.  Table B14 shows changes to DEL and AME, and the main national accounts expenditure aggregates, since the Budget. Total DEL spending for 2000-01 was £3.4 billion lower than estimated at the Budget. Total AME expenditure in 2000-01 was £1.4 billion lower than at the Budget, though the outturn figure is provisional and subject to revision. From 2001-02, total DEL remains unchanged since the Budget with the following exceptions: the £1 billion reallocated to health in 2002-03; some relatively small classification changes between DEL and AME which have no effect on overall TME; and some transfers from capital DEL to resource DEL, mainly for the devolved administrations in Scotland and Wales.

B57.  Total AME for 2001-02, excluding the AME margin, is £0.8 billion higher than in Budget 2001, reducing the margin to just £0.2 billion. This change is due to a number of factors, of which the main one is the inclusion in AME of estimated costs arising from Foot and Mouth disease of around £2 billion. Estimates of these costs were not available at the time of the Budget and it was expected that they would be met from the AME margin. Offsetting the costs of Foot and Mouth disease, net payments to EC institutions were £2 billion lower than expected, of which £0.2 billion relates to compensation from the EC towards the costs of Foot and Mouth, with the remainder due to a reduction in overall EC contributions. Expenditure on social security benefits is now expected to be £1/2 billion higher than in the Budget, mainly because of the increase in the winter fuel payment for winter 2001, announced since the Budget. Debt interest payments are about £0.6 billion lower because of lower short-term interest rates.

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Table B14: Changes in Total Managed Expenditure since Budget 2001

£ billion
Outturn Projections
2000-01 2001-02 2002-03 2003-04
Departmental Expenditure Limits
Resource Budget -1.5 0.6 2.1 1.2
Capital Budget -1.8 -0.4 -1.1 -1.2
Total Departmental Expenditure Limits -3.4 0.2 1.0 0.0
Annually Managed Expenditure
Departmental AME
Social Security Benefits 0.1 0.5 0.7 1.6
Housing Revenue Account subsidies 0.0 0.0 0.1 0.1
Common Agricultural Policy -0.1 1.9 0.1 0.1
Export Credits Guarantee Department 0.0 0.1 0.1 0.2
Self-financing public corporations
capital expenditure 0.0 0.1 0.1 0.1
Net public service pensions -0.4 -0.3 -0.1 -0.2
National Lottery -0.1 -0.2 0.0 0.5
Other programme expenditure 0.3 0.2 0.1 0.2
Non-cash items:
Depreciation -0.8 -0.1 0.2 -0.1
Cost of capital charges 0.1 0.1 -0.3 -0.2
Provisions and other charges 3.9 0.4 1.2 1.3
Total departmental AME1 2.9 2.6 2.2 3.5
Other AME:
Net payments to EC institutions 0.2 -2.0 -0.5 -0.6
Locally financed expenditure 0.4 0.2 0.1 0.2
Central government gross debt interest2 -0.4 -1.0 -2.7 -0.8
Accounting and other adjustments -4.4 0.7 1.1 0.9
Total other AME -4.3 -2.1 -2.0 -0.3
AME Margin 0.0 -0.8 -0.8 -1.5
Annually Managed Expenditure -1.4 -0.3 -0.6 1.7
Total Managed Expenditure -4.8 0.0 0.5 1.7
of which:
Public sector current expenditure -1.5 0.6 3.0 3.8
Public sector net investment -1.1 1.7 -0.5 -0.1
Public sector depreciation -2.2 -2.3 -2.0 -2.0

1 Including non-cash items
2 In Budget 2001, and previous documents, central government gross debt interest was defined as payments gross of payments to public corporations. In line with changes introduced in the 2001 National Accounts these are now stated net of payments to public corporations. Payments from central government to public corporations are now recorded in the adjustments for public corporations line in the accounting adjustments (see Table B15). Debt interest payments on a net basis are around £0.4 billion a year lower than on a gross basis.

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B58.  Before allowing for the effects of measures, the projections for AME components in 2002-03 are slightly lower than in the Budget. Debt interest payments are £2 1/4 billion lower because of lower short-term interest rates and lower RPI inflation. £1 billion of these lower payments have been reallocated to health spending in DEL. Net payments to EC institutions are again lower, by about £1/2 million, but social security spending is up by £3/4 billion, reflecting the new measures announced in this Pre-Budget Report and because of higher than previously forecast expenditure on benefits to the disabled. There are also a number of small increases in other components. After all these changes the AME margin is £1.2 billion, compared with £2 billion in the Budget projections.

B59.  The new measures announced in this Pre-Budget Report add nearly £1 3/4 billion to AME in 2003-04. Spending on other components is up by about £1 1/2 billion since the Budget and as a result the AME margin falls from £3 billion to about £1 1/2 billion. Debt interest payments in 2003-04 are around £0.4 billion lower than Budget projections - a much smaller fall than in 2002-03 because the change in interest rate expectations is smaller and because inflation effects make a positive contribution. Net payments to EC institutions are again lower, by about £1/2 billion. Social security spending, excluding the effect of the new Pension Credit and other new measures, is almost unchanged as the effects of the higher NAO audited unemployment assumption and lower inflation balance out. National Lottery spending is expected to be about £1/2 billion higher than in the Budget projections, and there are again small increases in most other components.

B60.  Details of the main accounting adjustments, which include those items within TME but outside DEL and AME main programmes, are shown in Table B15. Most of these items have increased since the Budget, partly as a result of revisions made by the Office for National Statistics, this summer, to the National Accounts. Some of the increases, such as the adjustments on VAT refunded on general government expenditure, are offset by changes to receipts.

Table B15: Accounting and other adjustments

£ billion
Outturn Projections
2000-01 2001-02 2002-03 2003-04
1 Non-trading capital consumption 7.7 8.0 8.5 8.9
2 VAT refunded on general government expenditure 6.6 7.4 8.1 8.7
3 EC Contributions -6.3 -5.8 -5.4 -4.9
4 Income tax credits 5.1 6.1 6.5 6.5
of which Working Families' Tax Credit and
Disabled Person's Tax Credit1 4.6 5.6 6.0 6.1
5 Adjustments for public corporations 4.3 4.5 4.8 5.1
6 Intra general government debt interest -3.0 -2.9 -3.0 -3.0
7 Financial transactions in departmental budgets -2.2 -2.2 -1.9 -2.1
8 Adjustments for expenditure financed by receipts 0.2 0.2 0.1 0.1
9 Other accounting adjustments -2.2 -0.3 0.3 0.3
less
non-cash items in DEL 0.3 0.2 0.2 0.2
non-cash items in AME 25.8 21.5 25.0 26.4
Total accounting and other adjustments -15.9 -6.9 -7.3 -7.1

1 The Working Families' Tax Credit will, subject to legislative constraints, be replaced in 2003 by a new system of tax credits.


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B61.  Table B16 shows the Departmental Expenditure Limits in terms of the resource and capital budgets. It has been updated since the Budget to reflect the additional £1bn for health reallocated from AME, transfers between departments and programmes, and machinery of government changes.

Table B16: Departmental Expenditure Limits - resource and capital budgets

£ billion
Outturns Plans
2000-01 2001-02 2002-03 2003-04
Resource Budget
Education and Skills 14.2 17.3 18.8 20.1
Health 43.6 47.9 53.3 56.6
of which: NHS 42.8 46.9 51.4 54.5
Transport and the Regions 3.6 4.7 5.1 5.1
Local Government 35.3 36.9 39.0 41.6
Home Office 8.4 8.8 9.2 9.7
Lord Chancellor's Departments 2.5 2.8 2.7 2.8
Attorney General's Departments 0.4 0.4 0.4 0.4
Defence 18.1 18.4 18.5 18.7
Foreign and Commonwealth Office 1.1 1.2 1.1 1.1
International Development 2.4 2.7 3.0 3.2
Trade and Industry 3.0 4.1 3.7 3.3
Environment, Food and Rural Affairs 1.5 2.1 1.7 1.8
Culture, Media and Sport 1.0 1.0 1.1 1.2
Work and Pensions (administration) 5.2 5.8 6.1 6.1
Scotland2 12.7 14.8 15.4 16.3
Wales2 6.8 7.6 8.2 8.8
Northern Ireland Executive2 4.6 5.0 5.3 5.6
Northern Ireland Office 1.1 1.0 1.1 1.0
Chancellor's Departments 3.6 4.0 4.0 4.0
Cabinet Office 1.2 1.5 1.4 1.4
Employment Opportunities Fund3 0.6 0.9 0.9 1.4
Invest to Save Budget 0.0 0.0 0.0 0.1
Capital Modernisation Fund 0.0 0.0 0.0 0.0
Policy Innovation Fund 0.0 0.0 0.0 0.0
Reserve 0.0 1.6 1.3 1.8
Allowance for shortfall4 0.0 -3.1 0.0 0.0
Total Resource Budget DEL 170.8 187.6 201.3 211.9
Capital budget
Education and Skills 1.6 2.9 3.0 3.9
Health 1.3 2.5 2.4 2.7
of which: NHS 1.3 2.3 2.3 2.6
Transport and the Regions 5.9 7.3 8.1 10.5
Local Government 0.1 0.1 0.3 0.3
Home Office 0.5 1.1 0.9 0.8
Lord Chancellor's Departments 0.1 0.1 0.1 0.1
Attorney General's Departments 0.0 0.0 0.0 0.0
Defence 5.2 5.5 5.7 6.2
Foreign and Commonwealth Office 0.1 0.1 0.2 0.2
International Development 0.2 0.4 0.4 0.4
Trade and Industry1 0.3 0.8 0.8 1.0
Environment, Food and Rural Affairs 0.4 0.5 0.5 0.5
Culture, Media and Sport 0.0 0.1 0.1 0.1
Work and Pensions (administration) 0.1 0.2 0.1 0.1
Scotland2 2.0 2.4 2.3 2.4
Wales2 0.8 0.9 1.1 1.1
Northern Ireland Executive2 0.7 0.8 0.8 0.7
Northern Ireland Office 0.0 0.1 0.1 0.0
Chancellor's Departments -0.2 0.3 0.2 0.2
Cabinet Office 0.2 0.3 0.2 0.2
Employment Opportunities Fund3 0.7 0.0 0.0 0.0
Invest to Save Budget 0.0 0.0 0.0 0.0
Capital Modernisation Fund 0.0 0.3 0.9 1.2
Policy Innovation Fund 0.0 0.0 0.0 0.0
Reserve 0.0 0.0 0.3 0.5
Allowance for shortfall4 0.0 -1.8 0.0 0.0
Total Capital Budget DEL 20.1 24.9 28.3 33.2
Total Departmental Expenditure Limits 190.9 212.5 228.6 245.1
Total education spending5 45.9 49.7 53.7 58.1


1 Includes the capital expenditure of the Export Credits Guarantee Department
2 For Scotland and Wales and Northern Ireland, the split between current and capital budgets is decided by the respective executives.
3 Formerly Welfare to Work expenditure financed by the Windfall Tax.
4 It is assumed that over the year underspends in total will offset the drawdown of End Year Flexibility.
5 Plans as at Budget 2001
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B62.  Table B17 gives a breakdown of public sector capital expenditure.

Table B17: Public sector capital expenditure

£ billion
Outturn Projections
2000-01 2001-02 2002-03 2003-04
CG spending and LA support in DEL 10.4 15.6 19.2 23.6
Locally-financed spending 1.9 1.9 1.9 1.8
National Lottery 1.1 1.1 1.2 1.3
Public corporations1 4.6 4.8 4.6 4.3
Other capital spending in AME 1.0 2.6 1.5 1.6
Allocation of reserve and AME margin 0.0 0.0 0.3 0.5
Public sector gross investment2 19.0 26.0 28.8 33.2
Less depreciation 12.7 13.2 14.0 14.6
Public sector net investment2 6.3 12.9 14.8 18.6
Proceeds from the sale of fixed assets3 4.5 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.

B63  Table B18 shows estimated receipts from asset and loan sales from 2000-01 to 2003-04. The table shows that, following fixed asset sales of £41/2 billion last year, the Government expects further sales of £4 billion in this year and each of the next two years.

B64.  The figures for sales of financial assets include outturn proceeds from the sale of a stake in National Air Traffic Services in the first half of 2001 and estimated proceeds from the Public Private Partnership for the Defence Evaluation and Research Agency.

Table B18: Loans and sales of assets

£ billion
Outturn Projections
2000-01 2001-02 2002-03 2003-04
Sales of fixed assets1
Central Government 1.2 1.0 1.0 1.0
Local Authorities 3.3 2.8 2.8 2.8
Total sales of fixed assets 4.5 3.8 3.8 3.8
Total loans and sales of financial assets -3.8 -2.7 -2.8 -3.1
Total loans and sales of assets 0.8 1.0 1.0 0.6

1 National accounts definition of capital. Excludes single-use fighting equipment by Ministry of Defence, which is treated as capital under resource accounting, and expenditure on and sale of which will be included in the capital budget under resource budgeting.

Financing Requirement

B65.  Table B19 presents projections of the net cash requirement by sector, giving details of the various financial transactions that do not affect net borrowing (the change in the sector's net financial indebtedness) but do affect its financing requirement.

Table B19: Public sector net cash requirement

£ billion
2000-01 2001-02
General government General government
Central Local Public Public Central Local Public Public
government authorities corporations sector government authorities corporations sector
Net borrowing -19.0 -0.6 0.8 -18.8 1.3 0.6 0.6 2.5
Financial transactions
Net lending to private sector and abroad 3.7 0.1 0.3 4.1 2.9 -0.1 0.0 2.8
Cash expenditure on company securities 0.0 0.1 0.3 0.3 -0.1 0.0 0.0 -0.1
Accruals adjustments on receipts -19.7 -0.4 0.2 -19.9 1.3 0.0 0.0 1.3
Other accruals adjustments -2.6 0.0 0.0 -2.6 -0.4 0.0 0.0 -0.4
Miscellaneous financial transactions 0.5 0.2 -0.7 -0.1 -0.2 0.0 0.0 -0.2
Own account net cash requirement -37.1 -0.6 0.8 -36.9 4.9 0.5 0.6 6.0
Net lending within the public sector 1.8 -1.1 -0.7 0.0 1.4 -1.0 -0.4 0.0
Net cash requirement1 -35.3 -1.7 0.1 -36.9 6.3 -0.5 0.2 6.0

1 Market and overseas borrowing for local government and public corporation sectors.

B65.  Table B20 updates the financing arithmetic for 2001-02 to allow for the latest forecast of the central government net cash requirement. The Debt and Reserves Management Report 2001-02, published in March, outlined how the Government planned to finance its net cash requirement in 2001-02.

Table B20: Financing requirement forecast

2001-02
Original remit Revised remit1 Pre-Budget
£ billion March 2001 April 2001 Report
Central government net cash requirement 0.3 0.3 6.3
Accrued uplift on index linked gilts 1.1 1.1 1.1
Expected net financing of official reserves 1.3 1.3 1.3
Expected gilt redemptions 16.7 16.7 16.7
Debt buy-backs 1.0 1.0 0.5
Financing requirement 20.4 20.4 25.9
Less assumed net National Savings contribution -3.0 -3.0 0.0
Less changes in DMO's balance at BoE - 0.3 0.3
Net financing requirement 23.4 23.1 25.6
Contingencies
Less change of Ways and Means facility na 0.0 0.0
Less increase in planned Treasury Bill stock na 5.0 6.4
Less further reduction in net short term debt2 na 4.6 5.2
Planned gross gilt sales 13.5 13.5 14.0
Gilt sales to date (April-October 2001) 7.7
of which
Short conventionals (3-7 years) 0.0
Medium conventionals (7-15 years) 2.5
Long conventionals (>15 years) 2.5
Index-linked 2.7
Further planned gilt sales
Short conventionals (1-7 years) 0.0
Medium conventionals (7-15 years) 2.3
Long conventionals (>15 years) 3.0
Index linked 1.0

Note: figures may not sum due to rounding.
1 An update of 2001-02's financing arithmetic was published when the outturn for 2000-01 was published
2 Excluding DMO cash deposit at the Bank of England
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