APPENDIX
E: THE NEW FORMAT AND FRAMEWORK FOR THE PUBLIC FINANCES
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INTRODUCTION
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| As
indicated in Section 2, a new format and framework for
the public finances was introduced by the Chancellor of
the Exchequer in the first Economic and Fiscal
Strategy Report, published in June 1998. The new
format: |
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- distinguishes between
current and capital spending;
- corresponds more
closely to the Government's two fiscal rules
(described in Section 2); and
- is more in line with
best international practices and the national
accounts.
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| Extensive
work will be required to present the calculations in
future editions of Government Expenditure and Revenue
in Scotland in the new format for the public
finances. This is particularly the case because, as
explained elsewhere in this report, in many instances,
separate data on revenue and expenditure pertaining to
Scotland are unavailable, making estimation necessary.
The calculations in this edition of the report continue
to measure the General Government Borrowing Requirement
(GGBR), based on the difference between aggregate General
Government Expenditure and aggregate General Government
Receipts, on the previous accounting basis. This
facilitates the comparison of the 1996-97 estimates with
those for previous years. |
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THE
MAIN CHANGES AND PRINCIPAL MEASURES
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| The
main changes to the format of the public finances are to
separate the current and capital accounts and to focus on
an internationally-accepted, accruals-based measure of
the budget balance. Table 21 summarises the structure of
the new presentation. |
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| The
principal measures are: |
- the surplus on the
current budget: this shows the difference between
current receipts and current spending, and is
used to judge whether the golden rule is being
met over the economic cycle;
- public sector net
borrowing: this is the principal measure of the
budget deficit and is consistent with the
national accounts, as well as being the concept
used for international comparison of budget
deficits;
- public sector net
debt ratio: this shows the total debt of the
public sector (net of certain liquid assets) as a
proportion of GDP. It is used to judge whether
the Government is meeting its sustainable
investment rule.
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| The
public finances continue to show the public sector net
cash requirement (known formerly as the Public Sector
Borrowing Requirement (PSBR)), which is closely related
to the General Government Borrowing Requirement shown in
this and previous editions of Government Expenditure
and Revenue in Scotland. However, public sector net
borrowing is the measure which is now given greater
prominence. |
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Table 21. New presentation of the public
finances
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Current budget |
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Current receipts |
| less |
Current expenditure |
| (a) |
Surplus on current budget |
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Capital budget |
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Gross investment |
| less |
Asset sales |
| less |
Depreciation |
| (b) |
Net investment |
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| (a - b) = (c) |
Public sector net borrowing |
| (d) |
Financial transactions:
loans and sales of financial assets
accruals adjustments |
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| (c + d) = (e) |
Public sector net cash requirement |
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THE
NEW FISCAL FRAMEWORK
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| The
new fiscal framework introduced in the Economic and
Fiscal Strategy Report 1998 is designed to improve
the control of spending and promote longer-term planning.
The main features of the reformed regime are: |
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- overall spending
plans based on sound economic principles: the
plans will cover all spending by the public
sector, to be known as Total Managed Expenditure
(TME);
- firm three-year plans
to provide certainty and flexibility for
long-term planning and management: the multi-year
plans will be drawn together in a new aggregate
known as Departmental Expenditure Limits (DEL);
- annual reviews of
spending outside the DEL: other expenditure,
which cannot reasonably be subject to firm
multi-year limits, will be known as Annually
Managed Expenditure (AME); and
- Annually Managed
Expenditure subject to constraints: AME will be
based on cautious estimates and careful annual
scrutiny.
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