Consistent with the Charter for Budget Responsibility we only include the impact of asset sales in our medium-term forecasts and long-term projections once sufficiently firm details are available of the nature, size and timing of the transactions for the effects to be quantified with reasonable accuracy.
However, it is important to consider the risks that currently unquantifiable future asset sales may present to our projections. Annex A in our accompanying online document provides a detailed discussion of the potential impact of asset sales on the public finances. It includes an illustrative range of potential valuations, based on publically available information, for the assets the Government is considering selling.
In the first instance, the net impact of asset sales on the public finances will depend on how the proceeds are used. Income from the sale of fixed assets is likely to be recycled within the relevant public sector body. The Government also intends to use proceeds from asset sales to fund the Green Investment Bank from 2012-13. Under such circumstances, the immediate fiscal impact is likely to be negligible.
In other cases, by selling an asset the Government gives up the right to a future flow of income, for example following the sale of company securities. Such sales would affect the profile of net debt, particularly at the point of any given sale. However, the eventual net impact would be determined by the size of the one-off payment relative to the present value to the Government of all related future flows, including income foregone and savings on debt interest payments. Over the extended time horizon that this report considers, the net impact may be significantly less than the headline sale price. Of course, when considering an asset sale, the Government will consider a number of factors other than the net impact on the public finances, such as a reduction in the level of risk that it is exposed to following a sale.
Our analysis highlights two asset sales that could have a material impact on the public finances: spectrum and the Government’s shareholding in public sector banks. At present, spectrum sales appear to be a favourable risk to the public finances. However, the potential value is extremely uncertain. Conversely, at current market prices, the sale of the public sector banks represents a downside risk.
If the Government were to complete its planned sale of company securities and spectrum towards the middle of the range of the most recently publicly available estimates, and leaving aside offsetting factors over time, it would broadly offset the current market value of losses on the public sector banks and other financial interventions. So in this case the impact on our long-term projections would not be material. But these estimates do not offer any reliable guide to the eventual proceeds were these assets to be sold. That is because a wide range of final policy decisions, which will determine the exact nature of any sales, are yet to be clearly defined. It is not therefore possible to quantify the potential impact with reasonable accuracy and so consistent with the Charter, we do not include these within our central projections.