The Public Sector Borrowing Requirement is calculated using Cash Accounting

The Public Sector Borrowing Requirement is calculated using Cash Accounting, which fails to differentiate between one off cash generation and cash from recurring cash generation. It is the Annual Government deficit and was definitely being significantly reduced pre-Covid. But perhaps not as fast as the official figures suggested.

The UK Government uses cash accounting, which is illegal for all UK companies apart from micro companies,  Its major flaw is that it does not differentiate between cash raised from the sale of assets such as the formerly state owned Royal Mail and cash raised from recurring cash generating operations such as corporation and income taxes.  This is an incentive to raise cash in any way possible but does not encourage sensible nor prudent behaviours.

Cash accounting also encourages the postponement, at any eventual cost, of cash payments to later accounting years.  This is because only actual cash paid out hits the National Income and Expenditure Account; the equivalent of the P&L.  Commitments to make future payments are generally only recorded in the National Balance Sheet, through reserve accounting, with the cash payments only going through the Income and Expenditure Account in the year in which they are actually paid.

The Public Sector Borrowing Requirement is calculated using Cash Accounting, Learn more about Board Level Finance

Or visit the Professional Directors Association