#uk – Martin Wheatcroft

ICAEW chart of the week: Budget 2025 debt blues

My chart for ICAEW this week illustrates how despite being a “tax-raising Budget”, the cumulative net effect of all the changes announced last week is to add £61bn to the public sector net debt forecast for 31 March 2030.

While my chart for ICAEW last week looked at the impact of Budget 2025 on 2029/30, the fourth year of the fiscal forecast used for the Chancellor’s fiscal rules, this week’s focus is on the cumulative effect of the changes made between now and 31 March 2030.

The first four bars of our step chart analyse the OBR’s forecast revisions, starting with extra borrowing to fund the expected budget overrun in the current financial year (2025/26) of £18bn (technically a £21bn higher deficit less a £3bn opening adjustment). This is followed by more borrowing to fund higher local authority spending of £26bn over four years (an average of £6.5bn a year) and to cover cumulative lower receipts of £35bn from downgrading the productivity growth assumption (£2bn a year rising to £16bn by 2029/30). This is then offset by £28bn over four years from the impact of inflation and wage growth on receipts exceeding the impact of inflation and other cost pressures on public spending.

Borrowing over the next four years is then increased by £19bn (just under £5bn a year on average) to cover the government’s welfare reversals over the summer – the restoration of the winter fuel allowance to many pensioners and the decision not to proceed with eligibility restrictions for disability benefits that were needed to make the Spring Statement add up.

The decision to lift the two-child benefit cap adds another £10bn (£2.5bn a year on average) to projected debt over the next four years, while other policy measures and working capital movements are expected to add £17bn (£11bn and £6bn respectively) on top of that.

A £36bn net reduction in debt from higher tax receipts net of indirect effects over the next four years (zero in 2026/27, £4bn in 2027/28, £10bn in 2028/29, and £22bn in 2029/30) reduces the cumulative impact to £61bn, with the £3,391bn forecast for 31 March 2030 at the time of the Spring Statement back in March 2025 being revised up to £3,452bn in the Autumn Budget 2025.

Perhaps the most surprising aspect of this analysis is the £26bn revision to the forecast for local government spending. While not as large as the well-publicised impact of productivity downgrades on the OBR’s fiscal forecast, it highlights some fundamental bookkeeping issues in how the government manages the public finances. A monthly financial consolidation process that excludes local government, schools and many other public bodies means the Office for National Statistics (ONS) and HM Treasury rely on forecasts and estimates instead of actual data when reporting the monthly public sector finances, exacerbated by the use of the four different accounting frameworks across the public sector and the local audit crisis in England that has created a large backlog in local authority audited financial statements.

The OBR states: “Recent substantial revisions to LA borrowing estimates and outturns, which reflect ongoing challenges in obtaining timely and high-quality estimates particularly for expenditure by local authorities. The ONS, the Ministry of Housing, Communities and Local Government, the Treasury and the OBR have formed a joint Local Government Financial Information Taskforce to investigate and address these concerns, with the overall objective of improving the flow of data to the ONS and the accuracy of our forecast.”

Meanwhile, the backloading of tax rises means that although the forecast is for a current budget surplus in 2029/30 and for a reduced overall deficit in that year, the summer welfare reversals, lifting of the two-child benefit cap, and other policy changes all require more borrowing before the tax rises kick in.

The 2025 Budget provides very mixed messages about the UK public finances’ prospects. There is more borrowing over the next three years before tax rises fully kick-in, while at the same time there are significant risks that mean the government could be back here again next year or the year after to ask for more money.

If ever a Chancellor could really do with some good economic news, it is probably in the coming year.

This chart was originally published by ICAEW.

ICAEW chart of the week: Autumn Budget 2025

My chart this week for ICAEW looks at how the Chancellor used tax rises to refill and increase her budget headroom after forecast revisions and spending increases eliminated the projected current budget surplus for 2029/30.

The chart shows how the projected current budget surplus of £10bn in 2029/30 was reduced by £6bn of Office for Budget Responsibility (OBR) forecast revisions, by £5bn of spending increases announced in the Autumn Budget, and by £1bn from the freezing of fuel duties for yet another year.

Together these reduced the Chancellor’s headroom against her primary fiscal rule (to be in a current budget surplus by the fourth year of the fiscal forecast) from £10bn to minus £2bn – in effect breaching her fiscal rule before taking account of tax rises.

The Chancellor has then restored – and increased – her fiscal headroom to £22bn through a long list of tax rises that are anticipated to generate £24bn more in receipts in 2029/30.

Forecast revisions

The rumoured forecast downgrade from the OBR of £6bn in 2029/30 turned out to be much less significant than expected.

The OBR cut its receipts forecast for 2029/30 by £16bn a year because of weaker assumed productivity growth. But this was more than offset by a £30bn increase from higher nominal wages and prices, driven by both inflation and real wage growth, to add £14bn to receipts in that year – an increase not a decrease to the receipts side of the forecast.

This was offset by £20bn in higher current spending, of which £6bn was from higher uprating of welfare benefits and growth in claimants and caseloads, £6bn from government policy reversals on the winter fuel allowance and disability benefits, £4bn in higher debt interest, £2bn in higher local government spending, and £2bn in other changes.

The resulting deterioration of £6bn in the projected current budget surplus for 2029/30 was £14bn smaller than the £22bn deterioration anticipated by the Institute for Fiscal Studies (IFS) in its pre-Budget forecast (as used in our chart of the week on the Autumn Budget hole). The principal driver was £22bn in incremental receipts from higher inflation and higher real wage growth less £6bn in higher spending for similar reasons.

Because departmental budgets for 2026/27, 2027/28 and 2028/29 set out in the Spending Review earlier this year have not been increased for this higher level of inflation, the risk is that future Budgets will need to top up the amounts allocated to departments to deal with cost pressures that are likely to arise.

Spending increases

Current spending is projected to increase by £5bn in 2029/30, comprising £3bn to cover the annual cost of abolishing the two-child benefit cap, £1bn in higher debt interest, and £1bn in net other changes in non-interest current spending.

The OBR also announced that it had reduced its underspend assumption for departmental budgets during the latest spending review period (2026/27 to 2028/29 for current spending) by an average of £4bn a year to reflect the increased pressures on budgets from higher inflation. There was no similar adjustment to 2029/30 current spending as it is not covered by the spending review, but there is a risk that a similar adjustment may be needed by the time of the 2027 spending review.

Fuel duty freeze

Freezing fuel duties has become a consistent feature of Budgets since 2011, with the effect of reducing annual tax receipts in real terms by just under £1bn a year.

Given the current Chancellor has chosen to continue this practice in two successive Budgets, it is disappointing that fiscal forecasts have not reflected the anticipated £3bn additional reduction in tax receipts in 2029/30 if fuel duty is frozen again in the next three Budgets.

Tax rises

The Chancellor announced a total of £27bn in tax rises in the Budget (£26bn if the fuel duty freeze effective tax cut is netted off), but this is expected to generate £24bn in incremental tax receipts once behavioural responses and other indirect economic effects are adjusted for.

These tax rises are expected to generate the following amounts per year by 2029/30:

£8bn from extending the freezing of personal allowances (more ‘fiscal drag’).
£5bn from restricting the use of salary-sacrifice schemes to make pension contributions.
£2bn from increased income tax rates on property, savings and dividends.
£1.5bn from changes to writing-down allowances.
Just under £1.5bn from a mileage-based charge on electric cars.
Just over £1bn from gambling duty reform.
Just under £1bn from capital gains tax on employee ownership trusts.
Just under £0.5bn from a high value council tax surcharge.
Around £4.5bn from other tax measures.
£2bn from improved tax compliance and collection.

Higher headroom

The Chancellor chose to increase headroom against her principal (current budget) fiscal rule from £10bn last year to £22bn and to increase headroom in her secondary (debt) fiscal rule from £15bn to £24bn.

These are both positive in that they provide a much bigger cushion against potential forecast downgrades in the spring or autumn next year, reducing the risk of another round of significant tax rises in the Chancellor’s third Budget in 2026. It also helps that she is likely to gain around £15bn of extra headroom as the main fiscal rule moves to being tested in the third year of the forecast, which comes with a margin of permitted current budget deficit up to a maximum of GDP.

However, significant downside risks remain, so this outcome is far from assured. The Chancellor still faces the challenge of reviving a weak economy and delivering substantial efficiency savings if she is to keep public spending under control in the absence of more fundamental reform. That task is made harder by the risk of bailouts for local authorities and universities, and by continued pressure on the welfare budget.

This chart was originally published by ICAEW.

ICAEW chart of the week: Controlling for debt

My chart for ICAEW this week shows how the high level of public debt is the main factor shaping next week’s Autumn Budget.

In the run up to next week’s Autumn Budget it has become clear that the Chancellor has very little room for manoeuvre.

In past fiscal events, a moderate downgrade in the economic and fiscal forecasts (see last week’s chart of the week) would typically be dealt with by allowing borrowing to rise, albeit in combination with a small cut in planned public spending (often to capital expenditure) and perhaps some minor tax rises.

This time is different. Borrowing – the normal safety valve for adverse forecast changes – is constrained by the existing high level of debt and by government’s existing plan to borrow substantial sums over the next five years, as illustrated by our chart of the week.

As my chart for ICAEW sets out, public sector net debt has risen over the past quarter of a century from £353bn on 31 March 2000 to £461bn in 2005, £1,028bn in 2010, £1,552bn in 2015, £1,816bn in 2020 and £2,810bn in 2025. It is forecast to rise further to £3,391bn on 31 March 2030.

Although the planned increase of £581bn over the coming five years is less than the £994bn increase over the previous five years, the latter included both the pandemic and an unexpected energy crisis.

The chart also shows how public sector net financial liabilities (PSNFL), the measure of debt that the Chancellor uses for her fiscal rules, increased from £300bn on 31 March 2000 to £2,439bn on 31 March 2025, with a planned rise of £480bn to £2,919bn due to take place on 31 March 2030.

The Chancellor’s debt fiscal rule is for the ratio of PSNFL to GDP starting to fall by 2029/30, or – in other words – for the rate at which debt is increasing to be slower than the rate of growth in the economy in four years’ time. The hope is that the borrowing the government is doing now to invest in infrastructure and economic development will speed up economic growth over that time, but unfortunately that is not yet showing up in the forecasts, which are going in the opposite direction.

With higher borrowing ruled out, the next option would be to look at spending. This also looks difficult as the Spending Review earlier this year locked in departmental budgets for the next few years (to 2028/29 for current spending and to 2029/30 for capital investment). Likewise, significant cuts in welfare spending also appear unlikely given the government’s failure to persuade its MPs to back a plan to cut back on disability and illness benefits and hints that the government wants to lift the two-child benefit cap. The Chancellor could potentially re-open the Spending Review, but that would risk spending going up not down given the continued pressures on health and the criminal justice systems, not to mention the international pressure from President Trump and others to accelerate increases in defence spending.

With other options such as raising the level of net inward migration also ruled out, that leaves taxation as the only real lever available to the Chancellor.

The flood of speculation ahead of next week’s Autumn Budget 2025 has ranged from manifesto-busting increases in one of the ‘big three’ taxes (income tax, VAT and national insurance) and fiscal drag (from the extension of freezes in tax allowances), to a long list of tax raising ideas to bring in just a little bit more money here and there that might together add up to a substantial amount.

At this point it seems that little can be ruled out.

This chart was originally published by ICAEW.

ICAEW chart of the week: A big Autumn Budget hole to fill?

My chart for ICAEW this week takes a look at the £40bn ‘hole’ in the public finances that the Chancellor may have to fill when she presents the Autumn Budget 2025 to Parliament on Wednesday 26 November.

There are two really big questions that most of us have for the Chancellor about the Autumn Budget 2025. Firstly, just how much money does she need to find? Secondly, where is she is going to find it?

My chart for ICAEW this week focuses on the first question – how much will the Chancellor need to find (in tax rises or spending cuts) to stick within her fiscal rules?

Speculation ranges from just under £20bn a year up to as much as £50bn depending on who you talk to, with the consensus being somewhere in the region of £30bn or £40bn.

The starting point for the chart is the official OBR projection that the Chancellor has already received. As we don’t have access to that, we have cribbed from the Institute for Fiscal Studies (IFS) Green Budget 2025 report, an independent ‘green paper’ pre-legislative report that provides an in-depth analysis of the economic and fiscal situation facing the UK that also takes a look at potential options available to the Chancellor.

Based on an updated economic forecast prepared by Barclays, the IFS think that the OBR’s March 2025 projected current budget surplus of £10bn in 2029/30 could be revised down to a projected current budget deficit of £12bn – a £22bn deterioration.

The numbers calculated by the IFS indicate £8bn lower tax receipts, £5bn higher debt interest, and £9bn higher current spending. The lower tax receipts and higher debt interest reflect a less favourable economic outlook than anticipated by the OBR back in March, while the latter consists of £1bn from the partial roll-back of cuts to the winter fuel allowance, £5bn from the failure to enact previously planned cuts to disability benefits, and £3bn from the effect of higher than previously forecast inflation on the uprating of the state pension and other welfare benefits.

If the OBR’s updated projections were to align with this scenario, then the Chancellor would need to find £22bn to get back to a projected current budget surplus of £10bn in 2029/30, assuming she decides again to give herself £10bn of headroom against her primary fiscal rule of a current budget balance.

We don’t know how these numbers compare with the numbers that the OBR are working on, but we do know that the OBR has been reviewing its assumptions for productivity growth, where it has proved consistently over-optimistic in previous forecasts. The IFS estimate that just a 0.1 percentage point downgrade in annual productivity growth would reduce the current budget balance by around £7bn in 2029/30, highlighting how sensitive the numbers are to relatively small changes. The IFS assume a downgrade of between 0.1 and 0.2 percentage points in their projection, although some rumours suggest the OBR has been considering a downgrade of as much as 0.3 percentage points.

The Chancellor has dropped a clear hint that she is going to abolish the two-child limit in the Autumn Budget as part of the government’s efforts to tackle child poverty, with the IFS and the Resolution Foundation both estimating that this could cost the exchequer between £3bn and £4bn a year by 2029/30. This would take the potential ‘hole’ up to £25bn.

For the purposes of the chart, I have also added in £5bn for further policy changes. Firstly, there is a good chance that the Chancellor will choose to make the existing 5p ‘temporary’ cut in fuel duties permanent at a cost of £2bn a year. This is currently scheduled to be reversed on 1 April 2026, alongside the expected end of the annual freeze in fuel duties – a measure that, if continued, could cost a further £3 billion a year by 2029/30.

The government is also under significant pressure – from President Trump and other NATO allies in particular – to accelerate increases in the defence budget to meet the new NATO target for spending on defence and security of 3.5% of GDP. Although the NATO target includes capital expenditure (which is not part of the current budget surplus or deficit), we have included a proxy amount of £3bn a year by 2029/30 for additional operating expenditure on defence.

This brings the potential funding requirement to roughly £30 billion, if the Chancellor aims to maintain £10bn of headroom against her fiscal rule of achieving a current budget balance in the fourth year of the forecast.

Unfortunately, as the government has discovered over the past year, such a small margin – less than 0.3% of GDP – is hugely problematic. Relatively small changes in the OBR’s assumptions or in actual economic performance can easily use up all the headroom, leading (as we have seen) to endless speculation about what the Chancellor is going to have to do to bring the public finances back under control.

The Chancellor is therefore expected to provide herself with a bigger cushion to reduce the risk of having to come back to raise taxes for a third time. The chart thinks she is likely to choose to double the level of headroom as a minimum – from £10bn to £20bn – with some economic commentators suggesting that an even larger cushion might be necessary.

The IFS point out in their report that extra headroom may be needed in any case because of the Chancellor’s second ‘debt’ fiscal rule, which is for public sector net financial liabilities to be falling as a share of GDP by the fourth year of the fiscal forecasts. Although she could cut the capital expenditure already budgeted for 2029/30 to remain within the fiscal rule, the Chancellor has said she wishes to avoid doing so.

Whatever happens, it looks like the Autumn Budget 2025 is going to be a pretty big deal.

This chart was originally published by ICAEW.

ICAEW chart of the week: Retail sales in Great Britain

My chart for ICAEW this week breaks down the £529bn of sales made by retailers in England, Wales and Scotland in the year to September 2025.

Retail sales are a core component of the economy, and my chart for ICAEW this week takes a look at the total amount of sales made by retailers over the past year.

According to the Office for National Statistics (ONS), total sales of £529bn in Great Britain between October 2025 and September 2026 comprised £207bn (39%) of food, drinks and tobacco, £80bn (15%) of household goods, £75bn (14%) of clothing and footwear, £46bn (9%) in automotive fuel, and £121bn (23%) in other retail categories.

This £529bn in sales is equivalent to around £10bn a week on average and represents around 18% of overall economic activity in England, Wales and Scotland by value.

The ONS also analyses the data by type of store, with £410bn and £119bn generated in sales by large (100 employees or more) and small (99 employees or fewer) retail businesses respectively, while around £132bn or 25% of retail sales are now transacted online.

Supermarkets and other ‘predominately’ food stores made sales of £209bn last year (of which £20bn or 10% was online), while textile, clothing and footwear stores recorded £57bn (£16bn or 28% online), household goods stores recorded £37bn (£9bn or 24% online), department and other non-specialised stores recorded £39bn (£10bn or 26% online) and all other stores generated £70bn (£15bn or 21% online). Internet, mail order, and other ‘non-store’ retailers (such as market stalls) made £70bn (£62bn online). None of the £46bn in petrol and diesel sales were reported as being online.

According to the ONS, seasonally adjusted retail sales volumes in September 2025 are at their highest level since 2022 but 1.6% lower than in February 2020 prior to the pandemic.

This decline in the amount of ‘stuff’ being bought by British consumers despite a growing population is primarily a reflection of the squeeze on household budgets from the cost-of-living crisis combined with relatively weak growth in household incomes over the last few years.

The concern for many retailers in the next few weeks will therefore be not only what business tax measures might be announced in the Autumn Budget 2025, but also the effect that other tax measures might have on household disposable incomes and, hence, the ability and willingness of consumers to spend their money in the shops and online.

This chart was originally published by ICAEW.

ICAEW chart of the week: Households in England

The recent passing of the Renters’ Rights Act 2025 prompts my chart of the week for ICAEW to take a look at just how many households there are in England.

The Renters’ Rights Act 2025 was given royal assent on 27 October, providing a range of new protections for tenants of private sector landlords in England. Its passing prompted us to ask just how many private sector tenancies will be affected by these changes once they are introduced into law.

My chart for ICAEW this week illustrates that there were 24.7m households in England in 2023/24 according to the Ministry of Housing, Communities and Local Government. Of these, 4.0m, or 16% of households, were in social housing (2.5m housing association and 1.5m local authority properties), 4.7m, or 19%, were tenants of private sector landlords, 7.3m, or 30%, were in properties owned with a mortgage, and 8.7m or 35% were in properties owned outright.

The chart also shows a breakdown of the 8.6m families with children (1.6m social renters, 1.8m private renters, 3.7m mortgaged owners and 1.5m outright owners), 7.0m couples with no children (0.4m, 1.0m, 2.1m and 3.5m respectively), and 9.1m one person or shared households (2.0m, 1.9m, 1.5m and 3.7m respectively).

The 8.6m family households comprised 5.7m couples with children, 2.5m lone parents with children, and 0.4m two or more family households, while the 9.1m one person or shared households comprised 8.5m one person households (4.5m female and 4.0m male) and 0.6m shared households containing two or more lone persons.

The 4.0m social renter households, 4.7m private renters, 7.3m mortgaged owners and 8.7m outright owners comprise 8.6m, 10.7m, 19.6m and 16.0m people respectively – the latter reflecting the older demographic where we see more outright ownership, fewer children and a higher proportion living alone.

For both tenants and their landlords, the Renters’ Rights Act 2025 will result in significant changes to their contractual arrangements and legal rights. The measures include new restrictions on no fault evictions, the end of fixed-term tenancies, limitations on rent increases, a new ombudsman, a requirement on landlords to register their properties, more rights to have pets, higher property standards, deadlines for rectifying hazards, an end to discrimination against those on benefits or who have children, an end to post-advertisement bidding wars, strengthened local authority enforcement, and the ability for rent repayment orders to be recovered from superior landlords.

This chart was originally published by ICAEW.

Government deficit hits £100bn in the first half of the financial year

Revisions and corrections help reduce the budget overrun to £7bn for the six months to September 2025, but the outlook remains bleak.

The UK government deficit hit £100bn in the six months to September 2025, according to the latest Office for National Statistics’ (ONS) monthly public sector finances release for September 2025, published on 21 October 2025.

The report also revealed a provisional shortfall between receipts and public spending of £20bn last month. The deficit for the month was £1bn higher than the previous year, in line with the budget. The cumulative deficit was £12bn higher than the first half of 2024/25, and £7bn more than budgeted.

Month of September 2025

Provisional receipts and total public spending for September – £95bn and £115bn respectively – were each 8% more than the previous year.

Current spending included depreciation of £108bn, comparable to the £108bn monthly average in the first five months of the financial year. Net investment was £7bn, higher than the £4bn monthly average investment between April and August 2025.

Excluding net investment, the current budget deficit for the month was £13bn – £2bn more than in the same month last year, £1bn more than budgeted. This was offset by a £1bn underspend on net investment.

Six months to September 2025

The provisional deficit for the six months to September 2025 was £12bn (14%) more than in the same six months last year. This was £7bn higher than budget, which can be analysed as a £13bn budget overrun on the current budget deficit (current receipts less current spending), less a £6bn underspend on net investment.

Table 1 highlights the changes in year-to-date receipts, up 7% overall on last year’s equivalents. These increases were mostly driven by factors such as inflation and fiscal drag from frozen tax allowances. The 20% increase in national insurance revenues reflects the increase in employers’ national insurance.

The 9% increase in current spending over the year has been driven by public sector pay rises, higher supplier costs, and the uprating of welfare benefits.

Net investment of £28bn in the first six months of 2025/26 was £1bn, or 4% higher than the same period last year. Capital expenditure of £46bn was up by £2bn and capital transfers (capital grants, research and development funding, and student loan write-offs) of £18bn were up by £1bn, offset by depreciation of £36bn, up by £2bn.

Table 1 Summary receipts and spending

6 months to Sep	2025/26 £bn	2024/25 £bn	Change %
Income VAT	145	133	+9%
VAT	104	100	+4%
National insurance	98	82	+20%
Corporation tax	52	48	+8%
Other taxes	115	112	+3%
Other receipts	63	62	+2%
Current receipts	577	537	+7%

Public services	(363)	(334)	+9%
Welfare	(155)	(146	+6%
Subsidies	(18)	(17)	+6%
Debt interest	(77)	(67)	+15%
Depreciation	(36)	(34)	+6%
Current spending	(649)	(598)	+9%

Current deficit	(72)	(61)	+18%

Net investment	(28)	(27)	+4%

Deficit	(100)	(88)	+14%

Budget for the rest of the financial year

The deficit is budgeted to be £118bn for the full year ending 31 March 2026, comprising £93bn in the first half of the year to September 2025 and £25bn in the second half of the year.

Borrowing and debt

Table 2 summarises government borrowing in the first six months of the financial year, taking public sector net debt to a provisional £2,916bn on 30 September 2025. This comprised £100bn in public sector net borrowing (PSNB) to fund the deficit and a further £6bn to fund government lending and working capital requirements.

The table also illustrates how the debt-to-GDP ratio increased by 1.6 percentage points, from a revised 93.7% of GDP at the start of the financial year to 95.3% on 30 September 2025, with incremental borrowing of £106bn, equivalent to 3.5% of GDP. It was partly offset by 1.9 percentage points due to inflation and economic growth adding to GDP.

Table 2 Public sector net debt and net debt/GDP

6 months to Sep	2025/26 £bn	2024/25 £bn
PSNB	100	88
Other borrowing	6	(14)
Net change	106	74
Opening net debt	2,810	2,686
Closing net debt	2,916	2,760

PSNB/GDP	3.3%	3.1%
Other/GDP	0.2%	(0.5%)
Inflating away	(1.9%)	(2.7%)
Net change	1.6%	(0.1%)
Opening net debt/GDP	93.7%	94.4%
Closing net debt/GDP	95.3%	94.3%

Public sector net debt on 30 September 2025 of £2,916bn comprised gross debt of £3,368bn less cash and other liquid financial assets of £452bn.

Public sector net financial liabilities were £2,565bn, comprising the net debt plus other financial liabilities of £715bn, less illiquid financial assets of £1,066bn. Public sector negative net worth was £908bn – net financial liabilities of £2,565bn less non-financial assets of £1,657bn.

Revisions

Caution is needed with ONS figures, which are repeatedly revised as estimates are refined, and gaps in the underlying data are filled. This includes local government, where numbers are updated in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

This month, the ONS revised down the previously reported deficit for the five months to August 2025 by £4bn, including a £2bn error correction for understated VAT receipts. The ONS also increased the reported deficit for the previous financial year (2024/25) by £4bn to £150bn to incorporate estimates of local government actual expenditure.

More significantly, the ONS revised its methodology for calculating economic activity, resulting in an increase in GDP of 1%. Doing so causes historical percentages for deficit and debt as a proportion of GDP to be revised downwards. This includes a 1.1 percentage reduction in public sector net debt/GDP at the start of the financial year on 1 April 2025, from the previously reported 94.8% to the 93.7% shown in Table 2.

Martin Wheatcroft, external advisor on public finances to ICAEW, said that public finances were broadly as expected, with the £20bn deficit for the month in line with budget.

“Borrowing to fund the deficit was a fraction under £100bn in the six months to September, the second-highest half-year deficit on record after the pandemic year. This was despite a narrowing of the year-to-date budget overrun to £7bn, as a consequence of error corrections and other revisions to previous months. In addition, statistical revisions to the size of the economy resulted in around a percentage point fall in the ratio of public sector net debt to GDP.”

Tepid economic growth and high debt interest costs will continue to weigh on prospects for the rest of the financial year, he added. “The revisions do very little to alter the bleak outlook for the public finances that is driving the need for a significant fiscal correction in the Autumn Budget 2025.”

This article was written by Martin Wheatcroft for ICAEW and was originally published by ICAEW.

ICAEW chart of the week: Tax burden rising

My chart for ICAEW this week shows how tax receipts as a proportion of national income have risen significantly since the turn of the century, begging the question as to whether taxes are too high or the UK economy is too small?

ICAEW chart of the week: Table burden rising.

A line chart with a solid purple line for tax receipts/GDP (three-year moving average) and a dotted teal line for total receipts/GDP (three-year moving average).

Tax receipts/GDP (solid purple line) zigs and zags between 32% in 1999/00 to 32% in 2004/05 to 33% in 2009/10 to 33% in 2014/15 to 33% in 2019/20 to 35% in 2024/25 to 38% in 2029/30.

Total receipts/GDP (dashed teal line) broadly tracks the purple from 35% in 1999/00 to 42% in 2029/30.

17 Oct 2025. Chart by Martin Wheatcroft FCA.
Source: OBR, 'Public finances databank: Sep 2025'.

My chart of the week for ICAEW illustrates how tax receipts as a percentage of GDP averaged 32% over the three years to 1999/00, 32% to 2004/05, 33% to 2009/10, 33% to 2014/15, 33% to 2019/20, 35% to 2024/25 and are projected to hit 38% over the three years to 2029/30, based on data from the Office for Budget Responsibilities’ public finances databank for September 2025.

The chart also shows how total receipts including non-tax income averaged 35% in the three years to 1999/00 and a projected 42% to 2029/30.

The one caveat to these percentages is that they do not reflect recent revisions by the Office for National Statistics that increase GDP by the order of 1% across multiple years, which will cause the reported percentages to be a little smaller when they are recalculated by the OBR for the Autumn Budget 2025.

Either way, a projected rise of approaching 20% in the proportion of the economy taken in taxes since the end of last century is pretty significant, even if the projected tax burden will be lower than those of many countries in Europe.

The chart doesn’t show public spending as a proportion of national income. This averaged 35% of GDP over the three years to 1999/00 and 45% of GDP over the three years to 2024/25, with more people growing older driving up the cost of pensions, health and social care significantly and a much higher bill for debt interest being two of the main factors driving up costs.

Public spending as a share of national income is projected to fall slightly to an average of 44% over the three years to 2029/30 as the government tries to reduce the shortfall between total receipts and spending (aka the deficit) through a combination of higher taxes (as announced in the Autumn Budget 2024) and some constraint in public spending over the next five years.

Unfortunately, a lack of fiscal headroom, a disappointing economic outlook, and cost pressures are now expected to lead the Chancellor to increase taxes even further in the Autumn Budget 2025. This suggests that taxes may be too low, at least if the government is to deliver the level of public services and welfare provision it is committed to.

If taxes are not too high, then the problem must be that the economy is too small. This is evidenced by low productivity growth since the financial crisis and successive economic shocks that have together resulted in a UK economy that has not grown at anywhere near the speed it might have.

If tax cuts are unlikely, at least in the medium-term, the principal route to reduce the tax burden must be to drive up economic growth, as called for in ICAEW’s business growth campaign. This calls for the government to focus on business growth by addressing the many factors that make it too uncertain, too difficult and too expensive to do business in the UK.

This chart was originally published by ICAEW.

ICAEW chart of the week: The cost of (government) borrowing

My chart for ICAEW this week looks at the cost of government borrowing by country based on 10-year government bond yields.

The calculated yield on 10-year UK government gilts on Wednesday 8 October 2025 at around 13:00 BST was 4.7% – the effective interest rate the government would need to pay if it had issued new debt at that time.

As my chart of the week for ICAEW illustrates, the UK now has the highest government borrowing cost among developed countries, compared with Switzerland 0.2%, Japan 1.7%, Germany 2.7%, Canada 3.2%, Spain 3.2%, Italy 3.5%, France 3.5%, the US 4.1% and Australia 4.4%.

With debt interest running at around 10% of total public expenditure, the cost of borrowing is a major issue for the Chancellor as she puts together the Autumn Budget 2025.

Reasons for the relatively high borrowing costs in the UK include persistently high inflation, growing public debt, an uncertain economic and fiscal outlook, the Bank of England’s quantitative tightening programme of selling its quantitative easing gilt holdings into the market, and reduced demand from debt investors.

This contrasts with Switzerland, where a strong currency, low public debt (around 37% of GDP), low inflation, and a lower-than-expected forecast for the fiscal deficit in 2025 permits the government to pay almost nothing to borrow at the moment.

Eurozone countries also pay less than the UK, even those with high debt levels such as Italy and France, with lower inflation (2.0% vs 3.8% in the UK in August 2025) being a major driver of lower yields on 10-year government bonds. Canada, with much stronger public finances than most developed countries but rising inflation and trade concerns, is paying more than Germany but approximately the same as Spain.

The US is currently paying 4.1% for new federal government borrowing, with rising inflation and growing fiscal deficits all contributing to a higher risk profile for debt investors. Australia is paying slightly more than the US despite much stronger public finances as it struggles to bring down inflation (3.0% in the year to August 2025).

Not shown on the chart are other countries with lower 10-year borrowing costs than the UK such as Singapore at 1.8%, the Netherlands at 2.8%, South Korea at 2.9%, Portugal at 3.1%, Greece at 3.3%, and New Zealand at 4.2%. There also countries with higher 10-year borrowing costs, including India at 6.5%, Mexico at 8.8%, and Brazil at 14.0%.

For the UK, the headlines have tended to focus on the 5.5% yield payable on 30-year government gilts, but in practice the Debt Management Office is currently issuing very little long-dated debt. The majority of gilts by value are being issued for less than 10 years, reflecting an expectation (or hope) that medium- and long-term borrowing costs will come down over the next few years as inflation returns to target and the volume of quantitative tightening slows.

A substantial proportion of the £3.2tn that the UK public sector current owes (£2.9tn after deducting cash and liquid financial assets) was borrowed when interest rates were much lower, meaning the government is currently paying somewhere in the region of 3% on its debts overall.

Unfortunately, the need to issue £1.3tn in new debt over the next five years (around half to refinance existing debt as it falls due for repayment and another half to finance planned fiscal deficits, lending and working capital requirements) means that the average weighted effective interest rate on UK debt is likely to increase even as the Bank of England base rate (currently 4.0%) is expected to come down.

This chart was originally published by ICAEW.

ICAEW chart of the week: GDP revisions

My chart for ICAEW this week looks at how a large upward revision in GDP for 2024/25 translates into a relatively modest 0.1 percentage point increase in economic growth per year since the pandemic.

On 30 September, the Office for National Statistics (ONS) published its latest quarterly GDP statistics for April to June 2025. The headline pointed to a slowdown in quarterly economic growth to 0.3% over that period, down from 0.7% growth in the first quarter of the year. However, more significant was a large revision that increased reported GDP for the year to March 2025 (2024/25) by 1.2%, taking it from £2,891bn to £2,925bn.

The ONS also revised GDP for previous years, including a 0.8% upward revision in reported GDP for 2019/20 from £2,241bn to £2,258bn.

My chart for ICAEW this week illustrates how this resulted in the increase in GDP over the five years to 2024/25, going from an average of 5.2% a year in GDP before revisions, to 5.3% a year after revisions. As inflation is similar before and after the revisions (at an average of 4.3% per year), this means that average annual real economic growth over the past five years has been revised up by 0.1 percentage points from 0.9% a year to 1.0% a year.

While the effect on economic growth over the past five years has been relatively modest, it will knock off at least a percentage point from the public sector net debt to GDP ratio – all without the Chancellor needing to lift a finger.

The statistical revisions reflect the typical process of updating historical numbers for more recent data, such as corporation tax returns that reported higher corporate profits than originally estimated and higher estimates of educational output, business inflation and output of pharmaceutical companies. However, the largest revision was a methodology change that increased the estimate of investment in research and development by approximately 1 percentage point of GDP, bringing the UK more in line with comparable countries in the developed world.

Unfortunately, even with this statistical boost to research and development, the UK still underperforms compared with the US, where economic growth since before the pandemic has been more than twice as fast, as well as lagging (albeit slightly) behind the Eurozone.

ICAEW’s business growth campaign has identified how it has become increasingly too uncertain, too difficult and too expensive to do business in the UK and calls for fundamental reform of tax, regulation and economic policy to support stronger business growth going forward.

Read more in ICAEW’s recommendations on how we can tackle the barriers to improving productivity in our business growth campaign.

For more detail about GDP and the revisions the ONS has made, visit GDP quarterly national accounts: April to June 2025.

This chart was originally published by ICAEW.