What is in the public balance sheet?

Most of the discussion about the public finances focuses on the fiscal deficit – the shortfall between receipts and spending – and public debt – the accumulated amount of borrowing that has been used to finance deficits and other cash requirements over the years.

However, there is much more to the public finances than deficit and debt. The government owns property and other assets that aren’t reflected in those measures and has significant liabilities in addition to debt.

Chart 1 summarises the wider public balance sheet as recorded in the most recently published Whole of Government Accounts 2023/24. These set out the consolidated financial position for the UK public sector in accordance with IFRS – accounting standards that are also used by listed companies in the private sector.

As Chart 1 illustrates, there were assets of £2.65tn recorded in the public balance sheet on 31 March 2024 were more than offset by liabilities of £5.02tn to result in an overall net liability position of £2.37tn.

This is equivalent to approximately £38,500 of assets and £73,000 of liabilities per person living in the UK, or a £34,500 net liability for each and every person living in the UK.

Chart 2 breaks down the £2,651bn asset side of the balance sheet into four main components.

These start with fixed assets with a book value of £1,619bn. Fixed assets include publicly owned infrastructure assets, such as:

• the national highway and local road networks across the UK,
• Network Rail and the train operating companies,
• Transport for London and other local public transport systems,
• flood defences, and
• Scottish Water (the rest of the water industry being in private hands).

They also include publicly owned land, central and local government buildings, defence equipment, software systems, and other tangible and intangible fixed assets.

Investments of £484bn include lending by the Bank of England to high-street banks and lending to students, together with equity and other investments. At 31 March 2024 this included a £7bn investment in NatWest, which has subsequently been sold.

The largest component of current assets of £262bn are unpaid and accrued taxes of £176bn on 31 March 2024, with the balance comprising trade and other receivables, prepayments, accrued revenue, contract assets, and court fines not yet paid.

Current financial assets of £295bn includes loan receivables and repurchase agreements due within less than one year and foreign reserves (which mostly consist of deposits in overseas central banks and foreign government bonds), as well as £39bn in cash, £36bn in IMF special drawing rights (SDRs) and £18bn in gold holdings.

Financial assets, investments and current assets are mostly recorded at their fair value or current market value as appropriate, apart from student, bank and business loans that are recorded at amortised cost. Fixed assets are either recorded at depreciated historical cost or at depreciated replacement value.

Chart 3 analyses total liabilities of £5,024bn on 31 March 2024 as:

• £3,259bn of financial liabilities,
• £1,312bn in public sector employee pension obligations,
• £262bn in provisions and charges, and
• £191bn in payables.

Financial liabilities include:

• British Government securities (gilts and treasury bills) owed to external investors,
• Bank of England deposits owed to banks, loans and other financial liabilities,
• National Savings & Investment premium bonds, certificates and deposits owed to the public, and
• banknotes in circulation.

Net financial liabilities of £2,964bn on 31 March 2024 (being £3,259bn of financial liabilities less £295bn of financial assets) were higher than public sector net debt (the measure of debt used in fiscal events) of £2,686bn on the same date primarily because of financial liabilities that aren’t included in the National Accounts definition of debt. 

The main public sector employee pension schemes are unfunded, meaning there is no money set aside to pay NHS workers, teachers, civil servants, armed forces or other public servants in retirement. Local government and other public bodies with funded pension schemes had liabilities on 31 March 2024 of £300bn that were offset by investments of £304bn.

Provisions for liabilities and charges include nuclear decommissioning costs payable over the next century or so and clinical negligence claims that can be paid over decades in some circumstances, as well as legal and other exposures. 

Payables primarily relate to purchases of goods and services by public bodies but also include tax refunds owed to taxpayers.

What is not in the public balance sheet?

The Whole of Government Accounts report that there were £207bn in financial commitments under non-cancellable contracts. This comprised £126bn for future interest and future services under PFI contracts and leases (in addition to the £62bn recorded as PFI and lease liabilities in the balance sheet) and £81bn for infrastructure, other capital programmes, grants and other projects.  

The balance sheet also excluded £184bn in contingent liabilities This comprised £52bn of potential obligations that it is possible but not probable will turn into liabilities (£26bn clinical negligence, £18bn nuclear decommissioning, and £8bn other) and £132bn ‘remote’ contingent liabilities that are not expected to become payable such as indemnities and guarantees that are not expected to be called and other low probability financial exposures. 

The balance sheet excludes resources that do not meet the accounting definition of an asset, such as the right to collect taxes in the future.  

Similarly, anticipated financial outflows that do not meet the definition of a liability, such as commitments to pay the state pension and other welfare benefits, are also not recorded in the balance sheet. 

How do public assets and liabilities affect people and businesses?

Public assets play a significant role in our lives and in the economy. Infrastructure assets, such as roads and railways are critical to the operation of the economy, while social housing provides millions with somewhere to live. The defence of the nation depends on military bases and equipment. We benefit from parks, leisure centres, community halls, libraries, museums and heritage properties, while other assets are needed to provide public services, from hospitals and GP practices, waste recycling equipment, police stations, and many others.

Assets can also be used to generate income, such as the Crown Estate that pays for the upkeep of royal palaces, as well as dividends to the government. There are also international reserve assets that support the currency, and investments to cover liabilities such as the Pension Protection Fund. These reduce the amount that people and businesses strengthen the balance sheet and reduce the need for taxes in the future.

Liabilities represent future outflows of cash that have to be paid or refinanced before anything else, restricting the ability of the government to use money for other purposes. For example, with no money set aside to pay for most public sector pensions, cash needs to be found each month to pay retired public sector workers. Similarly, payables and provisions need to be settled before thinking about discretionary spending.

Financial liabilities are the largest component of the liability side of the balance sheet, and debt interest needs to be paid. It is also a vulnerability in that a significant proportion of debt needs to be refinanced every year, increasing the government’s dependence on debt markets.

Despite that, liabilities do have a role in how the public finances are managed. Borrowing can be used to invest now with payback in the future – either in economic growth or more efficient public services. And we were able to borrow significant sums to bail out the economy in the financial crisis and the pandemic.

What is the outlook for the public balance sheet?

The government does not prepare forecasts for future balance sheets, but financial liabilities expected to continue to rise as the government continues to borrow (see debt).

Fixed assets are expected to grow gradually as new assets are constructed or purchased, and infrastructure assets are revalued to current values, offset by depreciation each year to reflect their use.

Investments are expected to reduce as although the student loan book should grow over time, this will be offset by the recovery of pandemic era loans.

Receivables should go up over time, with unpaid and accrued taxes expected to grow in line with the economy and inflation.

Cash and other liquid financial assets are expected to be broadly stable in line with policy objectives.

The calculated value of pension obligations shrank significantly from the amounts reported in the balance sheet in previous years because they are calculated by discounting future pension payments using interest rates that have risen significantly over the last few years (reducing the reported liabilities), while pension fund assets (for local government and certain other public sector schemes such as the BBC and Parliament) have also grown. Excluding the effect of changing discount rates, the gross liabilities of unfunded schemes are expected to increase by £50bn or more each year.

The provision for nuclear decommissioning may need to increase in the future as cost estimates have a history of going up as decommissioning work progresses and more problems are found.

Clinical negligence liabilities are expected to increase each year as new long-term claims are added to the total. This reflects a deliberate policy choice to avoid one-off settlements for long-term care and financial compensation in favour of ongoing payments. This approach avoids paying too little, which results repeated litigation by claimants for one-off settlements when the money runs out, and avoids paying too when settlements turn out not to needed in full.