HM Treasury News Release      

101/98                                              11 June 1998
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            A BETTER FORMAT FOR THE PUBLIC FINANCES 

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.

Notes to Editors

1.     The surplus on current budget - current receipts less current spending - was
       previously called the current balance.  No change is being made to the definition. 
       It will be used to judge whether the golden rule will be met over the economic cycle. 
       It also relates closely to the balance sheet measure of public sector net wealth.

2.     Public sector net borrowing excludes privatisations and other financial transactions
       that affect cash measures of borrowing, such as the PSBR.  It is much more
       consistent with the national accounts and internationally agreed measures of the
       deficit, and it is not distorted by year to year cash movements.  Focusing on this
       measure rather than the PSBR avoids artificial incentives to juggle the cash flow of
       the public sector in order to secure an apparent improvement.

3.     The Office for National Statistics are taking steps to provide the data to support the
       new format.  From July, they will publish monthly estimates of public sector net
       borrowing as well as the public sector net cash requirement.  Over the longer term,
       they are looking at what would be required to produce monthly estimates of the
       surplus on current balance.

4.     Accompanying the Economic and Fiscal Strategy Report there are six Treasury
       Press Releases 96/98 to 101/98.


If you have access to the Internet you can find this news release at
http://www.hm-treasury.gov.uk.  Other Treasury material can also be found at this
address.


# = pounds sterling