ICAEW chart of the week: the end of year capital rush

My chart of the week for ICAEW highlights the big rush in UK public sector capital expenditure in the final quarter of each financial year, prompting us to ask why March is the best time of the year to build new assets.

Column chart illustrating UK public sector capital expenditure by quarter, comprising three financial years each made up of four quarters: Q1 (Apr-Jun), Q2 (Jul-Sep), Q3 (Oct-Dec), and Q4 (Jan-Mar). 2022/23 £85.3bn: £14.4bn, £18.4bn, £20.2bn, and £32.3bn. 2023/24 £102.7bn: £18.6bn, £22.8bn, £24.2bn and £37.1bn. 2024/25 £109.0bn (forecast): £20.4bn, £23.8bn, £25.8bn and £39.0bn (forecast). 7 Feb 2025. Chart by Martin Wheatcroft FCA. Sources: ONS, 'Public sector finances, Dec 2024’; OBR, ‘Economic and fiscal outlook, Oct 2024’.

Over the years, the process for delivering capital expenditure in the public sector in the UK has had a pretty bad reputation. The anecdote goes that the first quarter is spent arguing about budgets, in the second everyone goes on holiday, and it is only in the third quarter that programmes finally get up and running, before everything stops for the Christmas break. The final quarter is then a mad rush to spend the remaining budget before the end of the financial year.

Unfortunately, there does appear to be some support for this conjecture when we take a look at the actual numbers.

According to the public sector finance release for December 2024, together with the latest Office for Budget Responsibility forecast for the current financial year to March 2025, public sector gross capital formation (in effect capital expenditure) is lowest in the first quarter, picks up in the second (despite the summer holidays), rises slightly again in the fourth (despite the Christmas break) and then explodes in the fourth quarter of each financial year (despite winter).

Our chart shows capital expenditure in 2022/23 of £85.3bn comprised £14.4bn in Q1 (Apr-Jun), £18.4bn in Q2 (Jul-Sep), £20.2bn in Q3 (Oct-Dec) and £32.3bn in Q4 (Jan-Mar). A similar pattern occurs in 2023/24 when a total £102.7bn of capex was incurred, with £18.6bn in Q1, £22.8bn in Q2, £24.2bn in Q3, and £37.1bn in Q4. Meanwhile in the current 2024/25 financial year, £20.4bn was incurred in Q1, £23.8bn in Q2, and £25.8bn in Q3, with a forecast of £39.0bn in Q4 to reach a forecast total of £109.0bn.

In practice the fourth quarter jump is principally seen in the final month of the financial year, as seen in 2023/24 when fourth quarter capital expenditure of £37.1bn consisted of £9.6bn in January 2024 (£1.0bn more than the monthly average capital expenditure of £8.6bn that financial year), £10.2bn in February 2024 (£1.6bn more than the monthly average), and £17.3bn in March 2024 (£8.7bn more than the monthly average).

This pattern is a stubbornly consistent feature of the public finances in the UK, even after numerous attempts within government to improve capital budgeting and delivery processes. For example, departments are able to carry over some of their capital budgets to future years, which in theory should reduce the incentive to spend every last penny of their allocation in-year. The new spending review process coming into force this summer should also help by setting out a four-year capital budget for 2026/27 to 2029/30, providing much greater forward certainty for investment programmes and (in theory) reducing the concern of future budgets disappearing if the current year budget is not spent in full.

Of course, it is possible that our concerns about the quality of government’s investment delivery process are not fully justified. There could after all be some very good practical reasons as to why March is the best time of the year for carrying out public capital works!

This chart was originally published by ICAEW.

ICAEW chart of the week: Pensioners on the rise

My chart for ICAEW this week highlights how the number of pensioners in the UK is expected to increase by 14% over the next 10 years. This will have major implications for the public finances.

Step chart. Starts with a projected UK population aged 66 or more in 2025 of 12,614,000 (21%), adds 2,677,000 over the next 10 years, then a reduction of 867,000 (7%) from the change in the state retirement age to equal a UK population aged 67 or more of 4,424,000 (+14%) in 2035. 31 Jan 2025. Chart by Martin Wheatcroft FCA. Source: ONS, 'Principal population projection (2022-based), Jan 2025'.

The Office for National Statistics (ONS) published its latest population projections for the UK on 28 January 2025. 

Extrapolated from the 2021 Census in England, Wales and Northern Ireland and the 2022 Census in Scotland, the ONS’s principal projection is for the UK population to increase by 5% over the next decade from a projected 69,868,000 in June 2025 to 73,426,000 in June 2035. This is on the basis of 132,000 more deaths than births in total over the next 10 years (6,979,000 versus 6,847,000) and net inward migration of 369,000 a year on average.

Our chart highlights how the number of pensioners is expected to increase by 14% over the next 10 years, from a projected 12,614,000 this summer to 14,424,000 in 2035, despite an increase in the state retirement age from 66 to 67. 

The main driver of this increase is an additional 2,677,000 people aged 66 or more, reflecting 8,522,000 people passing the age of 66 over the 10 years to June 2035, plus 28,000 from net inward migration (119,000 in and 91,000 out), less 5,873,000 deaths

This 21% increase is partially offset by a 7% reduction for the 867,000 66-year-olds who will still be waiting for their state pension in June 2035 as a result of the planned rise in the state retirement age from 66 to 67 between 2026 and 2028.

Over the same period the ONS is projecting a 7% fall in the number of children from 12,272,000 in June 2025 to 11,434,000 in June 2035, and a 6% increase in the size of the working age population from 44,982,000 to 47,569,000. The latter would have been a 4% increase if not for the statutory increase in the state pension age to 67.

The ONS stresses that its national population projections are not forecasts and do not attempt to predict potential changes in international migration in particular. It also notes that demographic assumptions for future fertility and mortality are based on observed demographic trends, which is no guarantee that these trends might not change in the future.

Despite those caveats, the projected increase in the number of pensioners is one of the more likely areas of the projections to turn into reality. This is because almost all of those future pensioners are alive today and already living in the country, while mortality rates tend to change gradually over time. 

A much more significant factor relates to the ONS’s long-term assumption for net inward migration of 340,000. While this is unlikely to affect the anticipated number of pensioners in a decade’s time, it will have a significant impact on the projected ratio between the number of pensioners and those of working age.

Either way, the projected rise in the number of pensioners compared with the size of the working-age population over the coming decade will have major implications for the public finances. 

Tax receipts will fall proportionately as retirees leave the workforce faster than new workers join. State pension payments will increase, even before taking account of the ratchet effect of the pension triple-lock on the amount payable to each pensioner. Health care and adult social care costs will rise substantially given how skewed these costs are to older generations. And pension credit, housing benefit and other welfare benefits that go to poorer pensioners are also likely to increase. 

Successive governments, including the current administration, have worked on the basis that they should be able to afford the higher costs of many more people living for longer in retirement through a combination of gradual rises in the state pension age (long hoped for but not delivered), higher levels of economic growth, and cuts in other areas of public spending such as the defence budget. 

With the number of pensioners increasing much faster than the government can raise the state pension age (given the decade or more advance notice that needs to be given), relatively low levels of economic growth even in more optimistic scenarios, calls for an increase in the defence budget and significant cost pressures affecting many other public services, the big question will be the extent to which taxes will have to go up even further over the next 10 years if the promises made by successive governments over the last century are to be kept.

Read more: ONS’s national population projections.

This chart was originally published by ICAEW.

ICAEW chart of the week: Make America Indebted Again!

My chart for ICAEW this week looks at official projections, published three days before President Trump was inaugurated for the second time, that predict federal debt is on track to return to and exceed levels last seen in the 1940s.

Shaded-area chart showing debt held by the public/GDP between 1905 and 2035, with highlighted peaks of 106% of GDP in 1946, 48% in 1993, a projected 100% in Sep 2025, and a projected 118% in Sep 2035. 24 Jan 2025. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: US Congressional Budget Office.

The US Congressional Budget Office (CBO) published its latest 10-year projections for the US federal government finances on 17 January 2025, covering the decade from 2025 to 2035. These projections are based on legislation enacted up to 6 January 2025, prior to the start of President Trump’s second term as President on 20 January 2025.

As the chart of the week illustrates, debt held by the public in relation to the size of the economy was 4% of GDP in 1905, falling to 3% in 1916 before rising to 33% of GDP as a result of the US entering the First World War. Debt/GDP fell over the subsequent decade to 15% of GDP in 1929 before rising again during the Great Depression to 42% of GDP in 1936. A drop to 40% in 1937 was then followed by a rise to 106% of GDP in 1946 following the end of the Second World War.

A rapidly growing economy over the next quarter of a century or so saw debt inflated away despite a major expansion in the size of the federal government over that period, with debt/GDP falling to 23% in 1974. More difficult economic times in the 1970s and 1980s and continued governmental expansion saw debt/GDP rise to 48% in 1993, before a growing economy again eroded debt as a share of GDP to down to 35% in 2007.

Debt rose rapidly during the financial crisis and subsequently, to reach 79% of GDP by 2019, before the pandemic drove it up further to 99% in September 2020. The post-pandemic economic recovery saw debt falling back to 95% of GDP in September 2022, but since then continued deficit spending since then has seen debt held by the public/GDP rise to 98% last year on its way to a projected 100% of GDP in September 2025.

The CBO predicts that debt held by the public will increase from $28.2tn at the end of September 2024 to $30.1bn in September 2025 and then to $52.1tn in September 2035, equivalent 118% of GDP. This assumes economic growth of 1.8% a year over the ten years to 2035 and is based on extrapolating from approved budgets and legislation in place as of 6 January 2025.

The big question is how that projected path will change as a result of the incoming Trump administration. His plan to cut taxes (pushing up the level of borrowing further) and to cut federal spending (offsetting some of that increase) will have a direct fiscal impact, but the indirect effects his policies have on the US economy will also be very important. Faster growth would have the effect of slowing the rise in the debt/GDP ratio or even bringing it down, while slower growth could shorten the time it takes to make America as indebted as it was back in 1946.

For further information, read the CBO’s ‘Budget and Economic Outlook: 2025 to 2035’.

This chart was originally published by ICAEW.

ICAEW chart of the week: Public finances per capita

My chart for ICAEW this week divides some very big numbers for the public finances by an estimated 69.2m people living in the UK to highlight how UK public spending is now in excess of £1,500 per person per month.

Column chart showing UK public sector receipts and spending per capita for 2024/25. Left hand column: Taxes £1,235 per month + Other receipts £150 per month = Receipts per capita £1,385 per month. Right-hand column: Pensions and welfare £445 per month + Health and social care £370 per month + Education £160 per month + Other public services £410 per month + Interest £150 per month = Spending per capita £1,535 per month.

According to the Autumn Budget 2024, the UK public sector expects to bring in £1,149bn and spend £1,276bn in the financial year ended 31 March 2025 (2024/25). At more than a trillion pounds a year in each case, these are very big numbers that can be difficult to comprehend.

My chart of the week attempts to make these numbers more understandable by averaging them over an estimated UK population of 69.2m for the current financial year and dividing them by 12 to arrive at per person per month equivalents (rounded to the nearest £5).

On this basis, total receipts are expected to average £1,385 per month for each person living in the UK in 2024/25, comprising £1,235 a month from tax receipts (£1,025bn in total) and £150 a month in other receipts (£124bn). 

Not shown in the chart is the approximately £940 per person per month on average – just over two-thirds of total receipts – that comes from the top five taxes: income tax £375 per month, VAT £245 per month, employer national insurance £135 per month, corporation tax £120 per month, and employee national insurance £65 per month.

Public spending is expected to average £1,535 per person per month in 2024/25, comprising approximately £445 per month on pensions and welfare, £370 per month on health and social care, £160 per month on education, £410 per month on other public services, and £150 per month on debt interest, based on forecast total spending in 2024/25 of £370bn, £307bn, £134bn, £340bn, and £125bn respectively.

Spending on welfare

Welfare spending includes (but is not limited to) approximately £170 per person per month to cover the cost of paying the state pension, around £105 per month to pay for universal credit (including housing benefit), and in the order of £75 per month to fund disability and illness benefits.

Per capita spending on health and social care comprises close to £290 per person per month on the NHS, £55 on social care and £25 on public health, health research and other health-related spending. 

Education costs each of us an average of £160 per month, of which approximately £115 per month pays for schools, £35 funds university and higher education (including just over £10 for student loans that are not expected to be repaid) and around £10 per month goes on further education, training and other.

The £410 per month cost of other public services includes in the region of £85 per month on defence and security, approximately £75 per month on roads and railways, £65 on industry and agriculture, nearly £60 per month on public order and safety, £15 per month on dealing with waste, and around £10 per month on international development and aid. This leaves approximately £100 per month to pay for all the other services that central and local government provide, including 11p per person per month for the Royal Family and palaces.

These numbers are averages and of course the amounts individuals pay in taxes and receive either in pensions and welfare benefits or in public services will vary significantly. For example, while health and social care spend is £370 per month when spread over the whole population, average spending on teenagers and those in their 70s are estimated to be significantly different from each other at £130 per month and £700 per month respectively.

Forecast per capita taxes and other receipts of £1,385 per month fall short of planned public spending of £1,535 per month to give rise to an expected deficit of approximately £150 per month funded by borrowing, being £127bn in total in 2024/25, divided by the estimated population of 69.2m. As a consequence, public debt now exceeds £2.8tn, equivalent to just under £41,000 for each person living in the UK, or somewhere in the region of £98,000 per household.

Navigating the public finances can be difficult at the best of times, but it is often helpful to translate the huge numbers you hear on the news into per capita equivalents to make sense of them. £1bn when spread across the UK population works at being equivalent to just over £1.20 per month.

This chart was originally published by ICAEW.

ICAEW chart of the week: Defence spending battle lines

My chart for ICAEW this week takes a dive into the £53.9bn Ministry of Defence expenditure in 2023/24 ahead of what is likely to be a charged debate about defence spending in the coming year.

Two column chart with parliamentary funding of £54.1bn on the left and MOD expenditure analysis of £53.9bn. The left hand column comprises £36.0bn from net expenditure £45.2bn minus depreciation of £9.2bn, pus reconciling items of £2.6bn and capital expenditure of £15.5bn. The right-hand column consists of £17.2bn capital programme, £12.2bn for infrastructure and equipment support and inventory, £2.6bn for Defence Nuclear, £3.9bn for arms-length bodies and other spending, £14.7bn for military and civilian personnel and admin, and £2.6bn for military operations. 10 Jan 2025. Chart by Martin Wheatcroft FCA. Source: Ministry of Defence, 'Annual Reporting and Accounts 2023/24'.

My chart of the week illustrates how parliamentary funding for the Ministry of Defence (MoD) amounted to £54.1bn for the year ended 31 March 2024 while summarising the MoD’s expenditure analysis of £53.9bn between £17.9bn for the capital programme, £12.2bn for infrastructure and equipment support and inventory, £2.6bn for Defence Nuclear, £3.9bn for arms-length bodies and other spending, £14.7bn for military and civilian personnel and admin, and £2.6bn for military operations.

The parliamentary funding of £54.1bn was used to pay for £36.0bn of day-to-day spending (being net expenditure reported in the accounts of £45.2bn less non-cash depreciation and impairments of £9.2bn) and £15.5bn in capital expenditure, after net reconciling items of £2.6bn (the largest being to exclude an exceptional £2.7bn gain from changes in discount rates).

The £17.9bn incurred on MoD’s capital programme during 2023/24 is higher than the total for capital expenditure because it includes research and development and capital grants that are expensed in the revenue and expenditure statement. Most of the amount spent relates to building or upgrading military equipment for the armed forces, ranging from Astute Class nuclear-powered and Dreadnought Class nuclear-powered ballistic missile submarines and Type 31 frigates for the Royal Navy, remotely piloted Protector surveillance and strike aircraft and radar upgrades to the Typhoon fighter for the Royal Air Force, through to Ajax armoured fighting vehicles and Chinook heavy-lift helicopters for the Army. It also includes investment in digital technology, back-office automation and investments in new military accommodation. (Existing military accommodation has been brought back in house since the end of the financial year).

The £12.2bn incurred in non-capital spending on infrastructure and equipment and inventory comprised £5.0bn to maintain and support infrastructure, £5.7bn to maintain and support equipment, and £1.5bn on inventory. A further £2.6bn was spent by the Defence Nuclear organisation to support the UK’s strategic nuclear deterrent capability, while £3.9bn went on arms-length bodies and other spending, including £1.3bn on the Defence Equipment and Support (DE&S) organisation that manages defence procurement, £0.2bn for the Defence Science and Technology Laboratory, the Submarine Delivery Agency and other arms-length bodies, £0.7bn for war pensions, and £1.7bn in other costs.

Personnel and admin costs of £14.7bn comprised £11.0bn for 151,905 full-time equivalent service personnel, £1.8bn for 70,881 full-time equivalent civilian and other staff, and £1.9bn in administration costs. This excludes £5.1bn in combined net expenditure for the Armed Forces Pension Scheme and Armed Forces Compensation Scheme that is reported separately from the MoD’s accounts. 

Incremental spending on military operations amounted to £2.6bn in 2023/24, of which £2.2bn (£1.2bn capital and £1.0bn resource) went to support Ukraine and just under £0.2bn was spent on operations in the Middle East, while £0.2bn or so was incurred on other operations elsewhere in the world and on conflict prevention, stabilisation, security and peacekeeping activities.

The net expenditure of £53.9bn reported by MoD in 2023/24 was equivalent to just under 2.0% of GDP, being the majority of the approximately 2.3% of GDP the UK says it currently spends on defence and security for NATO purposes. The difference mainly relates to the cost of armed forces pensions not included in the MoD accounts, spending on the UK’s security services, and spending on counter-terrorism activities.

The UK government has already set out an ‘aspiration’ for UK defence and security spending to reach 2.5% of GDP by the end of the decade, but the return of President-elect Donald Trump to the White House is likely to result in pressure on NATO members to meet an even higher target.

During his first term, President Trump floated the idea of a 4% NATO target, which would have required the UK to spend the equivalent of an additional £47bn of spending based on GDP in 2023/24 and more than £50bn a year extra in future years. Even a more modest target of 3% of GDP would require an extra £19bn (or £20bn in future years) to be found.

Finding such large amounts of money would pose a huge challenge for any government at the best of times, but the current very fragile state of the public finances means the stretch is even greater now – adding to the headaches that are no doubt being inflicted on the Chancellor as she seeks to balance the books over the remainder of the decade.

Definitely time to watch this space.

This chart was originally published by ICAEW.

ICAEW chart of the week: Commonwealth of Australia balance sheet

My chart for ICAEW this week heads down under for some warmer weather and to take a look at the Australian federal government balance sheet in its recently published consolidated financial statements for the year ended 30 June 2024.

Column chart illustrating the Commonwealth of Australia balance sheet. Assets of A$989bn in the left hand column and liabilities of (A$1,557bn) in the right hand column. 19 Dec 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: Commonwealth of Australia, 'Consolidated financial statements 2023/24'.

The Commonwealth of Australia consolidated financial statements for the year ended 30 June 2024 were published on 12 December, bringing together the results and financial position of 199 audited financial statements for entities within the federal government system, public financial corporations (such as the Reserve Bank of Australia and Export Finance Australia), and public non-financial corporations (including Australia Post and Snowy Hydro for example). However, this does not include state and territory governments or local authorities in each state and territory. 

As my chart this week illustrates, the balance sheet reports negative net worth of $568bn (21% of GDP or £284bn at the current exchange rate of approximately A$1 = £0.50), comprising assets of A$989bn (37% of GDP or £495bn) less liabilities of A$1,557bn (58% of GDP or £779bn). 

Assets consisted of investments and cash of A$527bn (£264bn), receivables and other financial assets of A$162bn (£81bn) and non-financial assets of A$300bn (£150bn), while liabilities comprised debt of A$1,044bn (£522bn), payables and provisions of A$205bn (£103bn), and superannuation liabilities of A$308bn (£154bn).

Investments and cash of A$527bn consisted of investments, loans and placements of A$417bn, equity investments of A$102bn, and cash of A$8bn. Investments include $225bn invested in the Australia Future Fund, a sovereign wealth fund established in 2006 to strengthen the Australian government’s long-term financial position, together with $A$44bn in a series of other sovereign wealth funds established over the last decade.

Receivables and other financial assets of A$162bn comprised tax receivables and accrued taxation of A$59bn, other receivables and accrued revenue of A$26bn, student loans of A$54bn, and other advances of A$23bn. 

Non-financial assets of A$300bn comprised A$89bn of military equipment, A$88bn of other plant, equipment and infrastructure, A$74bn in land and buildings, A$17bn in intangibles, $A13bn in heritage and cultural assets, and A$19bn of inventories and other non-financial assets.

Debt of A$1,044bn consisted of interest-bearing liabilities of A$943bn (A$611bn in government securities, A$227bn in central bank deposit liabilities, A$32bn for leases, and A$73bn in loans and other interest-bearing liabilities) and A$101bn in Australian currency in circulation.

Payables and provisions of A$205bn included A$90bn in provisions, A$63bn in non-pension employee liabilities, A$26bn in supplier payables and A$26bn in other payables.

The net pension obligation of A$308bn includes A$276bn for partially funded defined benefit schemes (obligations of $323bn less scheme assets of $A47bn) and A$32bn for one unfunded scheme. These schemes are now all closed to new members and so the liability is gradually reducing over time.

Not shown in the chart is the operating statement, which reported revenue of A$728bn (27.2% of GDP or £364bn), expenses of A$718bn (26.9% of GDP or £359bn) and net capital investment of A$12bn (0.5% of GDP or £6bn) to result in an operating surplus of A$10bn (0.4% of GDP or £5bn) and a fiscal deficit (on an accounting basis) of A$2bn (0.1% of GDP or £1bn).

Although the reported net worth in the financial statements is negative, Australia’s public finances are in a much stronger position than for many other countries. Australia’s general government net debt (including 13% for state and territory governments) was 32% of GDP on 30 June 2024, in contrast with the equivalent of 91% of GDP for the UK on the same date. This also doesn’t take account of the UK’s much larger public sector pension liabilities that are not included within net debt.

As a result there are more reasons than just the warmer weather to be thinking about enjoying a Christmas barbie on the beach on the other side of the world at this time of the year.

This is the last chart of the week for 2024 and so we would like to wish our readers all the best for the holiday season and for a healthy and prosperous 2025. We return in January.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK public sector pension liabilities

My chart for ICAEW this week looks at how public sector net pension obligations reduced by £1.2tn from £2.6tn to £1.4tn during the financial year ended 31 March 2023 as a consequence of a sharply rising discount rate.

Step chart on UK public pension liabilities in the Whole of Government Accounts 2022/23. Opening position at 1 April 2022 £2,639bn (£2,539bn unfunded and £100bn funded) + £117bn service costs + £48bn net interest costs - £1,269bn net actuarial gains = £50bn unfunded benefits paid - £70bn other movements = £1,415bn pension liability on 31 Mar 2023 (£1,419bn unfunded scheme liabilities - £4bn funded scheme net pension asset). 13 Dec 2024. Chart by Martin Wheatcroft FCA. Design by Sunday.

My chart of the week for ICAEW is on UK public sector pension liabilities, analysing how the net pension obligations reported in the Whole of Government Accounts 2022/23 reduced from £2,639bn on 1 April 2022 to £1,415bn on 31 March 2023. 

The Whole of Government Accounts are prepared in accordance with International Financial Reporting Standards (IFRS), with net pension obligations calculated in line with International Accounting Standard 19 (IAS19): Employee benefits.

The chart starts with opening net pension liabilities on 1 April 2022 of £2,639bn, comprising £2,539bn for unfunded schemes (including the NHS, teachers, civil services, armed forces, police and fire service schemes, among others) and a net liability of £100bn for funded schemes (principally local government schemes, but also some central government entities such as the BBC and the Bank of England, for example). The closing position on 31 March 2023 was £1,415bn, being pension liabilities of £1,419bn for unfunded schemes and a net pension asset of £4bn for funded schemes.

Service costs added £117bn to pension liabilities during 2022/23 and net interest added a further £48bn. These increases were more than offset by £1,269bn in net actuarial gains, £50bn in payments to pensioners in the unfunded pension schemes, and £70bn in other movements.

Service costs principally arise from the additional pension entitlements earned by public sector workers during the year, while net interest comprises the unwinding of the discount on pension liabilities (£40bn for unfunded schemes and £11bn for funded schemes) less investment income on assets in funded schemes (£3bn).

The net actuarial gains of £1,269bn comprises £1,357bn from changes in the assumptions underlying the value of liabilities (£1,218bn on unfunded schemes and £139bn in funded schemes) less £60bn (£59bn on unfunded schemes and £1bn on funded schemes) in experience gains and losses, less a loss of £28bn on investments. The principal assumption changes related to a change in the discount rates used to calculate pension obligations, which for the unfunded schemes increased from a real (i.e. inflation-adjusted) rate of 1.3% on 31 March 2022 to 1.7% on 31 March 2023.

The unfunded scheme liability is reduced for pensions paid on behalf of the schemes by the government. This contrasts with the funded schemes where assets are used to fund settlement of pension liabilities, resulting in no change in the net position. Other movements include £35bn in opening balance restatements relating to the NHS and former Royal Mail pension schemes and £39bn from the failure of 198 local authorities and the Northern Ireland Teachers Superannuation Scheme to report numbers to HM Treasury, less a net £4bn in other movements. 

The omission of so many local authorities, and the lack of audit assurance for many others, has led to the first ever audit opinion disclaimer by the Comptroller and Auditor General on the consolidated financial statements for the UK public sector.

Not shown in the chart is the breakdown of the £1,419bn closing balance for unfunded schemes into its constituent schemes: £535bn for NHS workers, £335bn for teachers, £222bn for civil servants, £156bn for the armed forces, £104bn for police, £30bn for pre-privatisation Royal Mail workers, £23bn for fire services, and £14bn for public sector staff in other unfunded schemes. Also not shown is the £304bn of liabilities in local government and other funded pension schemes or the related £308bn in investments in those schemes that result in a net pension fund asset of £4bn on 31 March 2023.

The recognition of a £1.3tn actuarial gain in the statement of comprehensive income and expenditure appears positive for the reported financial position of the nation by contributing to a reduction in overall net liabilities from £3.9tn to £2.4tn. However, it is important to realise that the future obligations to pay pensions to public sector employees haven’t changed – it is how those obligations are converted into current values.

Irrespective of the discount rate used, we as a nation will need to pay out very large amounts of money in public sector pensions.

This chart was originally published by ICAEW.

ICAEW chart of the week: US federal debt

My chart for ICAEW this week looks at how US federal debt has almost doubled over the past decade from $17.8tn in September 2014 to $35.5tn at the end of the most recent financial year in September 2024, with debt held by the public increasing from $12.8tn to $28.3tn.

Column chart on US federal debt, showing how debt of $17.8tn in Sep 2024 ($12.8tn debt held by the public and $5.0tn intragovernmental holdings) had increased to $35.5tn in Sep 2024 ($28.3tn debt held by the public and $7.2tn intergovernmental holdings). 6 Dec 2024. Chart by Martin Wheatcroft FCA. Source: US Treasury, US Governmental Accountability Office.

My chart of the week for ICAEW is on how much the US federal government owes has grown over the past decade. Total debt has increased by 99% from £17.8tn in September 2014 to $35.5tn at the end of the most recent financial year on 30 September 2024, reflecting a 121% increase in debt held by the public from $12.8tn to $28.3tn over 10 years, and a 44% increase in intragovernmental debt from $5.0tn to £7.2tn over the same period.

Debt held by the public on 30 September 2024 is equivalent to 97.8% of GDP, up from 96.0% of GDP a year earlier and from 73.3% of GDP at the end of the 2014 fiscal year.

Debt held by the public comprises amounts owed to banks, other corporations, individuals, and non-federal entities (including states) in the US and to foreign investors, including foreign governments. Intragovernmental debt includes amounts owed to the US social security system and funds carried forward by federal agencies, among others.

The increase in US federal debt held by the public has primarily been driven by borrowing to fund fiscal deficits incurred over the past decade, which amounted to $0.4tn, $0.6tn, $0.7tn, $0.8tn, $1.0tn, $3.1tn, $2.8tn, $1.4tn, $1.7tn and $1.8tn in the financial years ending 30 September 2015 through to 2024. Although the deficit peaked at $3.1tn in the year to 30 September 2020 during the pandemic, it has continued to exceed a trillion dollars each year since then.

The provision deficit in the year to 2024 of $1,833bn comprised $4,919bn in tax and other receipts, less $6,752bn in total outlays. 

According to the Congressional Budget Office, the deficit is expected to average $2.2tn a year over the next decade, with debt held by the public on the basis of their most recent projections expected to rise to almost $51tn or 122% of GDP in September 2034.

The assumptions behind those projections don’t take account of the plans of the incoming Trump administration to slash taxes and federal spending over the next four years, which could result in a variety of different paths for debt that are currently difficult to predict.

This chart was originally published by ICAEW.

ICAEW chart of the week: What do we all do?

My chart for ICAEW this week looks at what we all do for a living and how the government wants to move more of us from economically inactive categories into the workforce.

Pie chart breaking down UK population between 29.0m employees (42%), 4.3m self-employed (6%), 1.5m unemployed (2%), 3.0m ill or disabled (4%), 2.7m homemakers and other (4%), 12.3m retired (18%), 13.9m children under 16 (20%), 2.5m students 16 and over (4%).

My chart of the week for ICAEW looks at what we do for a living, according to the latest labour market statistics from the Office for National Statistics (ONS) for the third quarter between July and September, when the estimated population was 69.2m. 

According to the ONS, 29m people (42% of the total population) were in employment, 4.3m (6%) were self-employed and 1.5m (2%) were unemployed seeking work. In total this is fractionally just over half of the population (50.3%).

The other (almost) half of the population were not in work. They comprised 3m (4%) not working because of illness or disability, 2.7m (4%) homemakers or not working for other reasons, 12.3m (18%) people in retirement, 13.9m (20%) children under the age of 16, and 2.5m (4%) students aged 16 or over who were not also working.

The 33.3m who were employed or self-employed include 1.5m people aged 65 or more and 1.1m students in full-time education who also work. Around 5.9m work in the public sector. Overall, there are 24.9m people working full-time and 8.4m working part-time, while some 1.2m workers have more than one job. 

The 1.5m unemployed include 0.2m students in full-time education who are actively seeking work. Meanwhile, the 12.3m in retirement include 1.1m people who are under the age of 65.

The ONS also reports that 1.9m of those who are economically inactive between the ages of 16 and 64 would like a job, including 0.7m of those who are not working because of illness or disability. 

The government is very keen to get as many as possible of the 1.5m people who are unemployed, and the 3.0m not working because of illness or disability, into work. This would benefit the public finances twice over by not only reducing the cost to the exchequer of welfare payments paid out, but also by increasing the amount of tax receipts coming in.

Recent statements from government ministers have suggested that their strategy includes tightening the eligibility criteria for illness and disability benefits, in addition to providing additional support to help people back into the workforce.

The government is also looking at how it can encourage some of the 1.1m retirees below the age of 65 back into work, as well as persuading more of us to work beyond the statutory retirement age of 66.

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation jump

Our chart this week looks at how the jump in annual inflation from 1.7% in September to 2.3% in October was driven by higher energy bills.

Side-by-side step charts comparing the components of inflation for two overlapping periods. Visually each bar is weighted to its contribution to the inflation to the index. 12 months to Sep 2024: core inflation +3.2%, food prices +1.9%, alcohol and tobacco +4.9% and energy prices -16.9% = CPI all items 1.7%. 12 months to Oct 2024: core inflation +3.3%, food prices +1.9%, alcohol and tobacco +5.3% and energy prices -10.1% = CPI all items 2.3%.

Our chart of the week illustrates how the annual rate of consumer price inflation (CPI) has changed between September and October 2024. 

In the year to September 2024, core inflation – being CPI excluding the more volatile price rises of food, alcohol and tobacco, and energy – was 3.2%, while food prices were 1.9% higher than a year previously, alcohol and tobacco were 4.9% higher and energy prices were 16.9% lower. On a weighted basis these contributed 2.5%, 0.2%, 0.2% and -1.2% respectively to the overall CPI index.

This contrasts with the year to October 2024, where core inflation was 3.3%, food price inflation was 1.9%, alcohol and tobacco prices were up 5.3%, and energy prices were down 10.1%, contributing 2.6%, 0.2%, 0.2% and -0.7% to the annual rise in the CPI all items index.

In moving to the latest set of statistics, price changes during October 2023 are dropped from the annual rate and those for October 2024 are added. This results in a very different picture for energy prices, as a fall in domestic electricity and gas prices in October 2023 was replaced by an increase in the domestic energy price cap in October 2024. This caused energy prices overall to fall by a smaller amount in the year to October than they did in the year to September.

After weighting the different components of the CPI index, the 0.6 percentage point change in the annual rate of inflation reflected a 0.1 percentage point contribution from core inflation, close to zero from food inflation, 0.015 percentage points from higher alcohol and tobacco prices, and a 0.5 percentage point contribution resulting from a lower annual rate of fall in energy prices. 

Despite the slight uptick in the annual core inflation rate in October 2024 to 3.3%, it is still significantly lower than the 5.7% rate it was in October 2023, providing some encouragement to the Bank of England to reduce interest rates still further during 2025.

However, the concern for monetary policymakers before they decide to cut rates again will be the potential upward pressures on inflation from measures in the Autumn Budget 2024. The course they chart will be affected by how these and other economic factors (both domestic and international) play out over the course of the next six months or so.

This chart was originally published by ICAEW.