The Overall System of Accounts
We now look briefly at the overall system of national accounts and in particular at the financial relationships between the different sectors of the economy. Of fundamental importance is the flow of funds identity connecting the net lending or borrowing of the four sectors. For a more detailed discussion of the principles underlying the structure of the national accounts, read the section in the Blue Book entitled “An Introduction to the UK National Accounts.”
The Four Sectors
For the purposes of constructing the national accounts the economy is divided into four basic sectors. These are defined as follows:
• Personal sector – comprising households and unincorporated businesses and charities.
• Corporate sector – consisting of (i) companies and financial institutions, and (ii) public corporations.
• General government sector – which encompasses central and local government.
• Overseas sector – which refers to all individuals, firms and government institutions which are deemed to be outside the UK and with which UK residents may engage in external transactions; i.e. the rest of the world.
An alternative classification which is more useful in some cases is to divide the economy into three broad sectors. These are:
• Private Sector – comprising the personal sector and companies and financial institutions
• Public Sector – comprising general government and the public corporations
• Overseas Sector – the rest of the world (as above)