Box sets » July 2011

Discount rates
Discount rates are used to convert future cash flows into an equivalent one-off upfront sum or present value, allowing them to be presented alongside stock measures on a single balance sheet. But there is no single ‘correct’ discount rate and the use of discount rates presents some challenges in analysis of balance sheet movements over time. This box from our first Fiscal sustainability report in 2011 outlined the different discount rates used in the Treasury’s Whole of Government Accounts.
Treatment of PFI contracts in National Accounts and WGA
Depending on ONS classification assets relating to PFI contracts can be on the public sector or the private sector balance sheet. This box outlined the accounting of PFI contracts in the National Accounts and WGA.

Fiscal categories:
Public spending    Whole of Government Accounts and National accounts   

Cross-cutting categories:
Public sector balance sheet   

We only include the impact of asset sales in our projections once sufficiently firm details are available for the effects to be quantified with reasonable accuracy. This box considered the risks that currently unquantifiable future asset sales may present to our projections.

Fiscal categories:
Financial transactions   

Student loans
The Government carried out a number of reforms to the student finance support system, shifting funding from direct grants to loans to students. This box looked at the impact of student loans on public sector net debt.

Fiscal categories:
Student loans    Financial transactions    Public sector net debt   

What if all PFI deals were brought on balance sheets?
The majority of Private Finance Initiative (PFI) assets are held off the public sector balance sheet in the National Accounts. The running costs relating to existing PFI contracts are included within agreed departmental spending envelopes. This box explored the impact on our net debt projections if all capital liabilities relating to PFI contracts were included.

Fiscal categories:
Public spending    Departmental spending   

Cross-cutting categories:
Classification changes    Public sector balance sheet    Data revisions   

The fiscal mix and output
Economic theory suggests that tax and spending can impact output directly, such as expenditure on infrastructure, or indirectly, such as influencing the decisions of households and firms. This box explored the empirical evidence on whether tax and spending has a level (temporary) effect on output growth, or a growth (permanent) effect.

Economy categories:
Nominal GDP    GDP by expenditure    Government consumption   

Fiscal categories:
Receipts   

Tax revenues from the financial sector
The sectoral landscape of the economy had changed markedly with the financial sector becoming increasing important. This box examined implications for tax revenue arising from the financial sector.

Fiscal categories:
Receipts    Income tax    Corporation tax   

Cross-cutting categories:
Financial sector   

Intergenerational fairness
Solvency is not the only criterion that can be taken into account when assessing fiscal sustainability. This box outlined how generational accounts can be used to assess if future generations will be relatively worse off than current generations and the level of intergenerational fairness.

Fiscal categories:
Inter-temporal budget   

Cross-cutting categories:
Demographics