ICAEW 22 July 2020: the latest public sector finances for June 2020 published by the Office for National Statistics (ONS) on Tuesday.
The ONS reported a deficit of £35.5bn in June 2020, following on from £45.5bn in May 2020 (revised down from the £55.2bn reported last time) and £46.9bn in April (revised down from £48.5bn).
Public sector net debt increased to £1,983.8bn or 99.6% of GDP, an increase of £178.1bn from the start of the financial year and £195.5bn higher than in June 2019.
Public sector finances: three months ended 30 June 2020
|3 months to June 2020|
|3 months to June 2019|
|Variance vs last year|
|Public sector net debt||1,983.8||1,788.3||195.5||+11%|
|Public sector net debt / GDP||99.6%||80.7%||18.9%||+23%|
Source: ONS, ‘Public sector finances, June 2020’.
The combination of lower tax receipts and much higher levels of public spending has resulted in a deficit for the three months to June 2020 that is more than twice the budgeted deficit of £55bn for the whole of the 2020-21 financial year set in the Spring Budget in March, and more than five times as much as the same period last year.
Cash funding (the ‘public sector net cash requirement’) for the three months was £183.4bn, compared with £15.8bn for the same period in 2019.
Interest costs have fallen despite much higher levels of debt, with extremely low interest rates benefiting both new borrowing to fund government cash requirements and borrowing to refinance existing debts as they have been repaid over the last year.
Some caution is needed with respect to the numbers published by the ONS, which are expected to be revised as estimates are refined and gaps in the underlying data are filled. In particular, the OBR points out that the ONS has yet to record any allowance for losses that might arise on the more than £100bn of tax deferrals, loans and guarantees provided to support businesses through the pandemic.
Martin Wheatcroft FCA, adviser to ICAEW on public finances, commented: “The fiscal deficit for April, May and June is more than double the forecast for the entire financial year. The number published today confirm that we are on track to reach a record deficit this year.
The time for tough decisions on raising taxes or cutting public spending is not yet upon us, but it is time for the Government to start planning ahead by putting together a long-term fiscal strategy.”