The UK government earns income from a number of sources. The main one is taxation. However, it can supplement this through one-off sales and privatisations. This income is spent on public services including the armed forces, education and health.
Government spending usually exceeds its income, and the difference is known as a ‘public sector net cash requirement’ (PSNCR). Like an individual spending beyond their income, this difference must be funded.
For the government this means selling IOUs called gilts. So economists watch the size of the PSNCR carefully for clues about the level of future gilt issuance. It is also possible for the government’s income to exceed its expenditure, in which case economists refer to a ‘public sector net cash surplus’.