Martin Wheatcroft – Advisor and author on public finances, business strategy and financial communication.

ICAEW chart of the week: Prime Minister’s salary

My chart for ICAEW this week illustrates how PM Keir Starmer’s £172,153 official salary entitlement would have been £305,770 if prime ministerial pay had kept pace with inflation since 2009.

Column chart showing the Prime Minister's actual salary, official salary and official salary extrapolated in line with inflation on 1 April between 2009 and 2024. See text for numbers.

26 Sep 2024. Chart by Martin Wheatcroft FCA. Design by Sunday. Sources: House of Commons research briefings; ICAEW calculations. (c) ICAEW 2024.

Prime ministerial pay has been in the news quite a lot in recent weeks for a range of reasons, leading our chart of the week to look at how the prime minister’s salary has evolved over the last 15 years.

As the chart illustrates, former PM Gordon Brown was entitled to a salary of £197,689 and had an actual salary of £193,885 on 1 April 2009, significantly higher than today’s current official salary of £172,153 or the actual salary of £166,786 taken by current PM Keir Starmer. This is despite cumulative inflation of 55% (3.0% a year on average) or an increase in MP base pay of 41% (2.3% a year) over the past 15 years.

The reasons for these reductions in prime ministerial salary are primarily the result of a voluntary pay cut to £150,000 taken by Gordon Brown in the run up to the May 2010 election, and a further cut of 5% to £142,500 adopted by incoming PM David Cameron.

Cameron maintained his pay at this level for the duration of his first term in office, converting his voluntary decision into a permanent change in 2012 (backdated to 2011) in how much he and his successors have been entitled to receive. The chart shows how Cameron accepted a pay rise following the 2015 general election, taking him from a salary of £142,500 on 1 April 2012 out of an official entitlement of £142,545 to £150,402 on 1 April 2016 out of £152,532.

Subsequent prime ministers have also exercised pay restraint by restricting increases in ministerial pay, or in not taking all of the increases to which they were entitled. As a consequence, Theresa May concluded her period as prime minister in 2019 on a salary of £154,908 out of an official salary of £158,754, while Boris Johnson and Liz Truss were on annual salaries of £159,584 in 2022, short of their full entitlement of £164,951.

Rishi Sunak concluded his period as prime minister on an official salary of £172,153 from 1 April 2024 onwards, being the amount to which Sir Keir Starmer is entitled to claim if he wanted. However, the politics of accepting pay rises is difficult – perhaps now more than ever – and so Keir Starmer has stuck with the £166,786 actual salary that his predecessor was on before the 2024 general election.

Our chart illustrates how the prime minister’s official salary has eroded in value over the last 15 years by calculating how it would have risen to £219,800 on 1 April 2012, £232,000 on 1 April 2016, £247,720 on 1 April 2019, £266,020 on 1 April 2022 and £305,770 this year if it had increased in line consumer price inflation instead.

There are arguments for using other indexes for this comparison, such as public sector pay, which if used would have led to an official salary of £299,060 on 1 April 2024 ; average GDP per capita, perhaps a better measure of national economic performance, would have resulted in an official salary of £301,530. Linking to overall average pay would have led to an official salary of £311,990 today, while maintaining its value in comparison with pay in the private sector would have delivered a potential pay packet for the PM of £334,360.

The requirement for successive prime ministers to approve their own pay has led to the opposite of what you might think would happen. Instead of raising their salary ever higher because they have the power to do so, political choices and pressures have led them instead to cut or freeze their pay at different points over the last 15 years, resulting in a significant erosion in prime ministerial pay in that time.

These choices have led to the UK paying its head of government substantially less than comparable leaders such as Australian PM Anthony Albanese’s annual salary of A$607,500 (£311,500), German Chancellor Olaf Scholz’s €348,300 (£290,250) or Canadian PM Justin Trudeau’s C$408,200 (£226,800).

Ironically, it might be the prime minister (and his successors) who could benefit most of all of our public servants by taking the power to set his own pay away and giving it to an independent pay review body instead.

This chart was originally published by ICAEW.

ICAEW chart of the week: Eurozone government bond yields

My chart for ICAEW this week is on the cost of government borrowing in the Eurozone, which on 4 September ranged from 2.17% for Danish 10-year bonds up to 3.59% for their Italian equivalents.

My chart this week is on the range of yields payable on 10-year government bonds by 18 out of the 20 countries in the Eurozone for which data is available.

The chart illustrates how investors in German 10-year government bonds (known as ‘bunds’) would have received a yield to maturity of 2.22% – or conversely the German government could have borrowed at an effective interest rate of 2.22% if issuing fresh debt at that point in time. Yields on German bunds are used as benchmark rates for government debt not just in the Eurozone, but globally.

Just one country in the Eurozone has a lower 10-year bond yield than Germany, which is Denmark at 2.17% on 4 September, which is a 0.05 percentage points or 5 basis points (bp) ‘spread’ below the benchmark bund rate.

While quoted yields move up and down all the time, sometimes by quite large amounts, spreads are much less volatile, providing an insight into how debt investors perceive the relative risks of investing in different countries’ sovereign debt.

The next lowest yields were the Netherlands at 2.51%, with a spread of 0.29 percentage points above bunds, and Finland at 2.59% (+0.37%). This is then followed by Ireland on 2.67% (+0.45%), Austria on 2.71% (+0.49%), Belgium on 2.80% (+0.58%), Portugal on 2.82% (+0.60%), France on 2.93% (+0.71%), Slovenia on 2.94% (+0.72%), Cyprus on 3.00% (0.78%) and Spain on 3.02% (+0.80%). There is then a small jump to Greece on 3.28% (+1.06%), Slovakia on 3.30% (+1.08%), Malta on 3.34% (+1.12%), Lithuania on 3.36% (+1.14%) and Croatia on 3.41% (+1.19%).

The highest yield for investors among Eurozone countries – and hence the highest borrowing cost for its government – is Italy with 3.59%, which is 1.37 percentage points above the effective interest rate at which Germany could in theory borrow.

Comparing the bond yields in the Eurozone provides an insight into the relative strengths and weaknesses of these countries’ public finances and economies given that they all share a currency, a central bank base interest rate (currently 3.75%), and are all in the EU Single Market and Customs Union. Comparing yields with other currencies, such as the UK’s 3.95% for example (not shown in the chart), needs to take other factors into account, such as the UK’s much higher central bank base rate of 5%.

The chart also reports the government debt to GDP levels of each country for the second quarter of 2024 according to Eurostat, which may help explain why Denmark (with debt/GDP of 34%) pays a significantly lower borrowing cost than Spain (109%).

However, debt/GDP doesn’t explain all of the differences, with the 10-year yield on Greek government debt (debt/GDP 160%) of 3.28% for example being significantly lower than the 10-year yield on Italian government debt (debt/GDP 138%) of 3.59%.

Not shown in the chart are Estonia (debt/GDP 24%) and Latvia (45%), both of which tend to borrow at shorter maturities.

The lack of a firm correlation between debt/GDP and bond spreads should not be surprising as debt/GDP is a relatively crude measure of public finance strength or weakness. It excludes most government assets and non-debt liabilities, the funded or unfunded nature of their social security systems, as well as a country’s medium- and longer-term economic prospects and the perceived stability of that country’s government. These are all factors debt investors take into account when deciding the level of risk that they are willing to accept when investing.

This chart was originally published by ICAEW.

Government enters crisis control mode to curb public spending

Boost from self assessment tax receipts not enough to prevent a deficit in July as Chancellor searches for cost savings in the run up to the Autumn Budget.

The monthly public sector finances for July 2024 released by the Office for National Statistics (ONS) on Wednesday reported a provisional deficit for the first four months of the 2024/25 financial year of £51.4bn, £4.7bn worse than budgeted.

Alison Ring OBE FCA, ICAEW Director of Public Sector and Taxation, says: “Today’s data shows that the customary boost from self assessed tax receipts in July was not enough to prevent a deficit of £3.1bn, higher than budgeted, as cost pressures drove up public spending. Debt increased to £2,746bn or 99.4% of GDP at the end of July, up £5.9bn from the end of June 2024.

“The government is now in crisis control mode as it searches for savings to offset significant unbudgeted cost overruns in this financial year, with the cumulative deficit to July 2024 standing at £51.4bn, £4.7bn more than budgeted.

“Rumours that the government is looking at significant cuts in public investment programmes this year to keep within budget are concerning, given the importance to economic growth of infrastructure and the urgent need for upfront investment in technology to fix poorly performing public services. Our hope is that the Chancellor will be able to take a more strategic view in her Autumn Budget in October and in the Spending Review in the spring.”

Month of July 2024

There was a shortfall between receipts and spending of £3.1bn in the month of July 2024, £1.8bn higher than in July 2023 and £3.0bn worse than the budgeted deficit of £0.1bn.

Taxes and other receipts amounted to £99.4bn in July 2024, up £10.3bn or 12% from the previous month driven by self assessment income tax receipts in July, in line with the trend last year. Receipts were £2.0bn or 2% higher than in the same month last year, in contrast with total managed expenditure of £102.5bn, which was £3.8bn or 4% higher than in July 2023.

Financial year to date

The shortfall between receipts and spending of £51.4bn for the four months to July 2024 was £0.5bn better than in the same period last year, but £4.7bn over budget.

Cumulative taxes and other receipts amounted to £359.3bn in the first third of the financial year, up 2% compared with the same period last year, while total managed expenditure was 2% higher at £410.7bn. This is illustrated by Table 1, which highlights how cuts to employee national insurance rates have been offset by higher income tax, VAT, corporation tax, and non-tax receipts.

Total managed expenditure for the first four months of £410.7bn was also up by 2% compared with April to July 2023, but this reflected spending on public services up 4%, welfare spending up 6% and gross investment up 10% driven by overruns and construction cost inflation being offset by lower energy-support subsidies and lower debt interest.

The reduction in debt interest of £6.1bn compared with the first four months of last year was driven by a £26.5bn swing in indexation on inflation-linked debt that more than offset a £20.4bn increase in interest on variable and fixed-rate debt.

Table 1: Summary receipts and spending

	Apr-Jul 2024 £bn	Apr-Jul 2023 £bn	Change %
Income tax	89.9	86.4	+4%
VAT	67.9	66.0	+3%
National insurance	53.5	58.3	-8%
Corporation tax	34.0	31.6	+8%
Other taxes	73.5	72.1	+2%
Other receipts	40.5	37.5	+8%
Total receipts	359.3	351.9	+2%

Public services	(212.2)	(204.8)	+4%
Welfare	(103.1)	(97.5)	+6%
Subsidies	(10.6)	(14.0)	-24%
Debt interest	(46.6)	(52.7)	-12%
Gross investment	(38.2)	(34.8)	+10%
Total spending	(410.7)	(403.8)	+2%

Deficit	(51.4)	(51.9)	-1%

Table 2 summarises how public sector net borrowing (PSNB) to fund the deficit of £51.4bn combined with borrowing of £4.4bn to fund working capital movements, student loans and other financing requirements increased debt by £55.8bn during the first four months of the financial year. As a result, public sector net debt grew to £2,745.9bn on 31 July 2024, which is £931bn or 51% more than the £1,815bn reported for 31 March 2020 at the start of the pandemic.

The ratio of net debt to GDP ratio is at the highest it has been since the 1960s, having increased by 1.3 percentage points from 98.1% on 1 April 2024 to 99.4% on 31 July 2024. Borrowing to fund the deficit was equivalent to 1.9% of GDP and other borrowing was equivalent to 0.2%, an increase of 2.1% before being offset by 0.8% from the effect of inflation and economic growth on GDP (usually referred to as ‘inflating away’). Lower inflation this year means this effect is less pronounced than in the same period last year.

Table 2: Public sector net debt and net debt/GDP

	Apr-Jul 2024 £bn	Apr-Jul 2023 £bn
PSNB	51.4	52.3
Other borrowing	4.4	(11.4)
Net change	55.8	40.9
Opening net debt	2,694.1	2,539.7
Closing net debt	2,745.9	2,580.6
*PSNB/GDP*	*1.9%*	*2.0%*
Other/GDP	0.2%	(0.4%)
Inflating away	(0.8%)	(1.5%)
*Net change*	*1.3%*	*0.1%*
Opening net debt	98.1%	95.7%
*Closing net debt*	*99.4%*	*95.6%*

Public sector net worth, the new balance sheet metric launched by the ONS last year, was -£740bn on 31 May 2024, comprising £1,613bn in non-financial assets and £1,062bn in non-liquid financial assets minus £2,746bn of net debt (£343bn liquid financial assets – £3,089bn public sector gross debt) and other liabilities of £669bn. This is a £67bn deterioration from the start of the financial year and is £123bn more negative than in July 2023.

Revisions and other matters

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled. This includes local government, where monthly data is based on budget or high level estimates in the absence of monthly data collection.

The latest release saw the ONS reduce the reported deficit for the first three months of the financial year by £1.5bn from £49.8bn to £48.3bn as estimates were revised for new data.

A new dawn for local government has broken, has it not?

With money tight and many local authorities in a precarious financial state, ICAEW’s Alison Ring asks how the government can deliver on its commitment to devolution in the latest instalment of Room 151’s Municipal Missions Manifesto series.

A change in government. A commitment to devolve power. No money.

We all know that England is the most centralised of the advanced economies, but it is still difficult to comprehend just how strange it is that in a nation of 58 million people (out of a UK total of 69 million), the national government in Westminster should be so intimately involved in deciding which high streets in Nottinghamshire or Cornwall are improved, whether to fund public conveniences in Lancashire or Kent, or which parks in Herefordshire or Hertfordshire should get outdoor chess sets.

We might also wonder why we have a central government ministry dedicated to local government at all when in most countries it is the regions, states or provinces that are responsible for local authorities.

Here in the UK, there is a large bureaucracy devoted to overseeing hundreds of councils across England of many shapes and sizes, while another department decides whether to fund road schemes hundreds of miles from London that the ministers and civil servants making those decisions may never use.

Despite the extensive control exercised by Whitehall, successive governments have found that this does not translate into effective action on the ground, while local leaders are frustrated by excessive bureaucracy and limitations on how they can drive economic development and deliver public services locally and regionally. Labour has committed to devolving power in England, but without resolving many of the current problems in local and regional government it is going to be difficult to make devolution a practical possibility.

Step 1 – stabilise the system

The new government has already made two promising announcements that should go a small way to stabilising the existing system. Firstly, it has confirmed that local authorities will participate in rolling three-year spending reviews to be carried out every other year. This will make a huge difference by enabling budget holders to plan ahead more effectively, particularly on capital investments where projects can often span multiple financial years.

Secondly, a ministerial statement from local government minister Jim McMahon has confirmed that action will be taken to tackle the backlog of incomplete audits which is undermining local authority financial reporting and the assurance provided by external auditors. Although tempered by the knowledge that it will take several years to get local audits back on track, and that many of the longer-term fundamental issues identified by the Redmond Review remain unaddressed, this is a positive step forward.

While money is tight, if funds can be found then supporting local authorities under the most financial pressure should be a priority.

Step 2 – complete the roll out of a regional tier of government

A combination of gentle encouragement, financial incentives and some arm twisting has led to the establishment of 11 combined authorities led by regional ‘metro’ mayors mainly in so called ‘city-regions’. Together with the Greater London Authority this means that around half of the English population now have a regional mayor, but the corollary is that the other half do not.

While a large part of devolution is about empowering individual local authorities, gaps in the regional tier of government make it difficult for Whitehall to hand out some of its core functions. This is particularly the case for economic development where, for example, Greater Manchester’s mayor Andy Burnham is all too eager to grasp whatever powers he can and run with them, but there is no one to take the lead in the same way for most of the South West.

One way to fill in the gaps would be to accelerate the roll-out of combined authorities, while another would be to go for the ‘big bang’ approach adopted by France in 1986 when it created a new tier of regional government across Metropolitan France in one fell swoop.

Step 3 – separate out social care and SEND from funding for local public services

One of the biggest drivers of the financial challenges faced by many local authorities is the growing cost of welfare provision – principally adult social care and special educational needs and disabilities (SEND) support. The ‘reverse hypothecation’ caused by these two costs has had the effect of squeezing budgets for local public services and pretty much everything else delivered by local authorities outside of (ring-fenced) social housing.

Ironically, one of the most effective ways to strengthen local government would be to centralise or regionalise social care and SEND budgets or at the very least deal with them separately in council tax bills as a distinct precept. Depending on how this is implemented, this could provide a much closer link between how much communities pay to their local councils and the local public services they receive.

Step 4 – sort out the finances

As the joke goes, if you want to get to where you want to go, then you shouldn’t start from here.

In this case, ‘here’ is a place where many local authorities are in financial difficulty and struggling to meet their statutory obligations. Funding formulas that are based on out-of-date population numbers and don’t reflect underlying needs. A council tax system reliant on 1991 property valuations. Business rates that are an unwieldy tangled mess.

These weak financial foundations to the local government system in England are crying out for reform, even it is necessary to acknowledge that change will be very difficult and politically risky. Despite the many different options that are theoretically possible, it is worth considering the proposal put forward by the Fabian Society in a recent report on fiscal devolution produced in association with ICAEW.

The Fabians suggested that the distribution of central government grants be agreed among local authorities rather than determined in Westminster, accompanied by a more stable basis to determining their amount. Another route that the Fabians looked at is the system of shared taxation in Germany which provides the core funding for German regions out of national taxes in a way that equalises funding between richer and poorer regions.

Step 5 – rebuild trust

Prising the hand of Whitehall off the shoulder of English local authorities is not going to be easy. It will take significant political capital to make devolution happen, and there will be many reasons found to not hand over control of the purse strings ‘just yet’.

Many of these reasons will be down to a lack of trust. Trust in the ability of local authorities to manage money wisely, not helped by the governance failures of recent years. Trust in the transparency of local authority finances, not helped by the impenetrable nature of the accounts. Trust in the quality of local public audit, not helped by the local audit crisis.

That is why devolution is not just about the decisions that central government makes to give away or delegate power and money, and how it chooses to structure the system. It is also about the choices made by local and regional authorities asking for those new powers.

So, if you are in an area without a combined authority, it is time to start talking to your neighbouring areas about forming one. If your accounts make it difficult for stakeholders to understand how you have spent public money, it is time to streamline and invest in making them better. And if you are behind on your audits, then you need to do what you can to work with your external auditors to get back on track.

There is a big prize here. More effective and efficient local and regional government leading to better outcomes. And more bandwidth in Whitehall to focus on national and international priorities.

Alison Ring OBE FCA is director for public sector and taxation at ICAEW, the Institute of Chartered Accountants in England and Wales.

This article was written on behalf of ICAEW by Martin Wheatcroft in conjunction with Alison Ring, and was originally published in Room 151 and subsequently (with some minor changes) by ICAEW.

ICAEW chart of the week: BBC

My chart for ICAEW this week highlights how the BBC is struggling financially after incurring an operating loss of £0.3bn on the provision of public service broadcasting and the failure of commercial activities to contribute to the bottom line.

The British Broadcasting Corporation (BBC) recently published its annual report and accounts for the year ended 31 March 2024 (2023/24) and my chart highlights how the BBC is struggling financially with a reported operating loss of £0.3bn and no operating profit contribution from commercial activities.

Licence fee income was £3.7bn in 2023/24, which combined with other income of £0.3bn resulted in public services broadcasting revenue of £4.0bn. After deducting operating costs of £4.3bn, this meant the BBC lost £0.3bn on its eight national and seven regional TV channels, 10 national and 46 regional and local radio stations, BBC World Service radio in 42 languages, BBC iPlayer, BBC Sounds, BBC Education, news, sport and weather internet sites, orchestras and other activities, including funding of the independent S4C TV channel in Wales.

External income generated by the BBC’s commercial operations amounted to £1.4bn but this was offset by £1.4bn in operating costs, leaving the overall group operating loss broadly unchanged from the public service broadcasting total.

Licence fee income of £3.7bn was just under £0.1bn or 2% lower than the year before as the number of households paying the full licence fee reduced from 23.2m to 22.7m at the end of March 2024 on a fee frozen at £159 per year (equivalent to £13.25 per month). There were approximately 4,000 households with monochrome licences and 0.2m households on concessionary fees, with a further 1.0m with free licences (principally given to those aged 75 or more receiving pension credit).

Other income includes £0.2bn from contract income and £0.1bn in grants from the Foreign Office towards the cost of the World Service.

Public services broadcasting expenditure of £4.3bn was £149m lower than the year before and can be analysed between spending on content of £3.0bn, distribution and support costs of £0.9bn, and other activities of £0.4bn. Content spending can be further broken down into £1.7bn on TV channels, £0.5bn on radio, £0.3bn on the World Service, £0.2bn on online services including BBC iPlayer, and £0.3bn on other content.

While external commercial income was broadly matched by costs once intra-group transactions are taken account of, the BBC’s commercial businesses contributed £325m in 2023/24 towards the BBC’s overheads, down from £368bn in the previous year. They principally comprise BBC Studioworks, which supplies studio time and post-production services to the major TV networks and most production companies in the UK, and BBC Studios, which produces TV shows and films on behalf of the BBC and other broadcasters, as well as distributing BBC content around the world. BBC Studios also operates the UKTV network of four ad-supported TV channels, four ad-supported streaming channels and three pay TV channels in the UK, several international TV channels (including BBC America and BBC News international services), and the BritBox International streaming service outside the UK (now 100% owned by the BBC).

Not shown in the chart is £0.5bn in non-operating gains, most of which were one-off items, including £0.2bn in gains on disposals in the year and £0.2bn from tax adjustments in respect of prior years. This resulted in an overall net surplus of £0.2bn for the year ended 31 March 2024.

Real-term cuts in the value of the licence fee and falling returns from commercial activities have put significant financial pressure on the BBC in recent years, causing it to cut back on content and some services, consolidate operations such as domestic and international news gathering, and undergo a series of restructurings to improve efficiency.

The 8.7% increase in the licence fee to £169.50 from 1 April 2024 (equivalent to £14.13 per month) and inflation-linked increases planned over the next three years should help ease some of the pressure in the current financial year, although returning to operating profitability is likely to still require the BBC to look for further savings in its public service broadcasting operations.

Unfortunately, the BBC has not been able to replicate its commercial success in the years before streaming when it was able to generate significant returns from the sale of DVDs and international content licensing. While there are plans to build up its international streaming services (from a relatively low base), the BBC’s commercial businesses are unlikely to generate enough money to affect the dilemma facing the new government on what to do with the licence fee when the BBC’s current financial settlement ends on 31 December 2027.

The temptation will be for the government to defer reform of how the BBC is funded yet again, just as its predecessors have done over the last couple of decades. However, the erosion of income from younger households choosing to not watch broadcast television to stop paying the licence fee, and the likely consolidation of streaming services into a handful of global online ‘broadcasters’ that will dominate the market, is likely to make avoiding this conundrum that much more difficult this time around.

For more information, read the BBC annual report and accounts 2023/24 and the December 2022 House of Lords Communications and Digital Committee report on future funding of the BBC.

This chart was originally published by ICAEW.

Q1 public finances confirm challenging position for new government

First quarter shortfall between receipts and spending of almost £50bn emphasises the significant challenges facing the Chancellor as she puts together her first Budget.

The monthly public sector finances for June 2024 released by the Office for National Statistics (ONS) on Friday 19 July 2024 reported a provisional deficit for the first three months of the 2024/25 financial year of £49.8bn, £1.1bn better than a year previously but £3.2bn worse than budgeted.

Alison Ring OBE FCA, ICAEW Director of Public Sector and Taxation, says: “This is the first set of public sector finance data since the new government was elected, and today’s numbers set out the size of the obstacle the UK’s leaders face.

“£14.5bn was borrowed to finance the deficit in June, which although £3.2bn less than in June 2023, brought the total for the first three months of the financial year to £49.8bn, slightly worse than expectations. The latest numbers also highlighted the growing amount of public debt, which stood at 99.5% of GDP or £2,740bn on 30 June 2024. Although total debt interest was lower than last year because of the effect of lower inflation on inflation-linked debt, interest on the bulk of debt continues to rise.

“The high level of debt – and the associated interest bill – means that the new Prime Minister and Chancellor will be faced with some very difficult decisions over the coming months as they decide which elements of their programme to prioritise, and which will have to wait.”

Month of June 2024

Taxes and other receipts amounted to £88.2bn in June 2024, up 2% compared with the same month last year, while total managed expenditure was 2% lower at £102.7bn. This resulted in a reduction of £3.2bn from a fiscal deficit of £17.7bn in June 2023 to £14.5bn in June 2024.

Financial year to date

Taxes and other receipts amounted to £258.0bn in the three months to June 2024, up 1% compared with the same month last year, while total managed expenditure was 1% higher at £307.8bn. This resulted in a reduction of £1.1bn from a fiscal deficit of £50.9bn for the first quarter of 2023/24 to £49.8bn for the first quarter of 2024/25. However, this is £3.2bn more than the £46.6bn for the first quarter included in the Spring Budget 2024.

Table 1 analyses receipts for the first quarter of the financial year, highlighting how cuts to employee national insurance rates have been offset by higher income tax, corporation tax, and non-tax receipts.

Table 1: Summary receipts and spending

Three months to	Jun 2024 (£bn)	Jun 2023 (£bn)	Change (%)
Income tax	58.1	56.1	+4%
VAT	49.9	49.6	+1%
National insurance	39.7	43.4	-9%
Corporation tax	25.3	23.4	+8%
Other taxes	54.9	54.1	+1%
Other receipts	30.1	27.7	+9%
Total receipts	258.0	254.3	+1%
Public services	(158.8)	(152.6)	+4%
Welfare	(76.9)	(73.7)	+4%
Subsidies	(7.8)	(11.3)	-31%
Debt interest	(35.2)	(41.1)	-14%
Gross investment	(29.1)	(26.5)	+10%
Total spending	(307.8)	(305.2)	+1%
Deficit	(49.8)	(50.9)	-2%

Table 1 also shows how total managed expenditure for the first quarter of £307.8bn was up by 1% compared with April to June 2023, with higher spending on public services and welfare offset by lower energy-support subsidies and lower debt interest. The reduction in the latter of £5.9bn was driven by a £9.2bn reduction in indexation on inflation-linked debt that more than offset a £3.3bn or 44% increase in interest on variable and fixed-rate debt.

Table 2: Public sector net debt

Three months to	Jun 2024 (£bn)	Jun 2023 (£bn)
Deficit	(49.8)	(50.9)
Other borrowing	3.9	(7.7)
Debt movement	(45.9)	(58.6)
Opening net debt	(2,694.1)	(2,539.7)
Closing net debt	(2,740.0)	(2,598.3)
Net debt/GDP	99.5%	96.7%

Public sector net debt was £2,740bn or 99.5% of GDP on 30 June 2024, just under £46bn higher than at the start of the financial year. At 99.5%, the debt to GDP ratio is the highest it has been since the 1960s.

The increase in the first quarter reflects borrowing to fund the deficit of just under £50bn minus close to £4bn in net cash inflows from loan recoveries and working capital movements in excess of lending by government.

Public sector net debt is £142bn or 5% higher than a year previously, equivalent to an increase of 2.8 percentage points in relation to the size of the economy. It is £925bn or 51% more than the £1,815bn reported for 31 March 2020 at the start of the pandemic and £1,712bn or 167% more than the £1,028bn net debt amount as of 31 March 2007 before the financial crisis, reflecting the huge sums borrowed over the last two decades.

Public sector net worth, the new balance sheet metric launched by the ONS in 2023, was -£726bn on 31 May 2024, comprising £1,613bn in non-financial assets and £1,070bn in non-liquid financial assets minus £2,740bn of net debt (£340bn liquid financial assets – £3,080bn public sector gross debt) and other liabilities of £669bn. This is a £53bn deterioration from the start of the financial year and is £77bn more negative than the -£649bn net worth number for June 2023.

Revisions and other matters

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled.

The latest release saw the ONS increase the reported deficit for the first two months of the financial year by £1.8bn from £33.5bn to £35.3bn as estimates were revised for new data. More significantly, public sector net debt at the end of May 2024 was reduced by £16.3bn to £2,726.6bn to correct for omitted data on Bank of England repo transactions during the current financial year. This reduced the reported debt to GDP ratio for May 2024 by 0.7 percentage points from 99.8% of GDP to 99.1%.

This article was originally published by ICAEW.

ICAEW chart of the week: World population

My chart for ICAEW this week looks at how a declining fertility rate means the global population is now anticipated to reach a peak of ‘just’ 10.3bn in 2084, according to the UN.

World population.
ICAEW chart of the week.

Column chart showing the world’s population in 2000, 2025, 2050, 2075 and 2100.

Europe and Middle East – 0.8bn, 0.9bn, 1.0bn, 1.0bn and 1.0bn.
Americas – 0.8bn, 1.1bn, 1.2bn, 1.2bn and 1.1bn.
Asia-Pacific – 2.1bn, 2.4bn, 2.3bn, 1.9bn and 1.5bn.
South and Central Asia – 1.7bn, 2.3bn, 2.7bn, 2.9bn and 2.8bn.
Africa – 0.8bn, 1.5bn, 2.5bn, 3.3bn and 3.8bn.

Total – 6.2bn, 8.2bn, 9.7bn, 10.3bn (10,250m) and 10.2bn (10,180m), with a peak of 10.3bn (10,289m) in 2084.

For the purposes of this chart, Europe and Middle East comprises Europe and Western Asia as defined by the UN but excludes Russia and Northern Africa, Asia-Pacific comprises Eastern Asia, Southeastern Asia and Oceania, and South and Central Asia comprises Southern Asia, Central Asia and Russia.

18 Jul 2024. Chart by Martin Wheatcroft FCA. Design by Sunday.

Source: UN Department of Economic Affairs, ‘World Population Prospects’.

© ICAEW 2024

The Population Division of the UN Department of Economic and Social Affairs (UN DESA) recently published its latest population projections for the 21st century. Its central projection is for the world’s population to increase from 8.2bn next year to a peak of 10.3bn in 2084 in 2084 before falling slightly to 10.2bn at the end of the century.

This means that the population will have increased by 2.0bn between 2000 and 2025 and is projected to increase by 1.5bn over the next 25 years to 9.7bn in 2050 and by 0.6bn to 10.3bn in 2075, before gradually starting to fall from 2084 onwards.

My chart illustrates how this change differs by region, with the population of Africa expected to grow throughout the century from 1.5bn in 2025 to 3.8bn in 2100. South and Central Asia, which has seen its population grow from 1.7bn in 2000 to an anticipated 2.3bn next year, is expected to see further growth to 2.9bn in 2075 before then falling to 2.8bn in 2100, while the population of the Asia-Pacific region is expected to increase from 2.1bn in 2000 to 2.4bn in 2025, is expected to fall gradually from 2030 onwards to 1.5bn in 2100.

The population of the Americas is expected to grow slightly from 1.1bn in 2025 (up from 0.8bn in 2000) to 1.2bn before falling back to 1.1bn by 2100, while Europe and Middle East’s population is expected to increase from 0.9bn in 2025 (up from 0.8bn in 2000) to close to 1.0bn in 2050 and for the rest of the century.

UN DESA says the main driver of global population increase over the next 60 years until it peaks is the momentum created by growth in the past, with increases in the number of women of reproductive age until the late 2050s offsetting a declining fertility rate – currently one child fewer on average than in the 1990s (2.25 live births per woman currently compared with 3.31 in 1990). They also project that the number of people aged 65 will reach 2.2bn in 2080, surpassing the number of children under 18 in that year.

The declining fertility rate is one reason that the UN are projecting that the world’s population in 2100 will be 700m or 6% smaller than they were anticipating a decade ago, despite life expectancy starting to increase again after falling during the COVID-19 pandemic.

For some countries and areas, the declines in population are expected to be quite significant over the remainder of the century, such as the populations of China and Japan, which are expected to reduce from 1,416m to 633m and from 123m to 77m between 2025 and 2100 respectively. Meanwhile India is expected to grow from a population of 1,464m in 2025 to a peak of 1,701m in 2061 before falling to 1,505m in 2100.

Many other countries and areas have already or will shortly see their populations start to decline, except for about 52 countries and areas up until 2054, and 62 up until 2100, where immigration will be the main driver of population growth. The latter includes the UK, where the population is expected to rise from 70m in 2025 to a peak of 76m in 2073 before falling to 74m in 2100, and the US, expected to grow from 347m in 2025 to 421m in 2100.

According to the analysis by the UN, there are around 100 countries and areas (out of the 237 included in their analysis) with relatively youthful populations over the next half century that have a window of opportunity to accelerate their economic development. This ‘demographic dividend’ occurs when the share of the population of working ages is increasing faster than the overall population and a substantial and sustained decline in fertility increases the numbers available to work, assuming the countries concerned can put in the investment needed to take advantage of this opportunity.

This chart was originally published by ICAEW.

ICAEW chart of the week: GDP over five years

My chart for ICAEW this week looks at how negative economic growth per capita over the last five years may have contributed to the recent change in government.

GDP over five years.
ICAEW chart of the week.

Step (waterfall) chart showing the changes in quarterly GDP in 2019 Q1 and 2024 Q1.

2019 Q1: £549bn

+ Inflation: +£120bn (+4.0% per year)

+ Population: +£22bn (+0.6% per year)

+ Growth per capita: -£3bn (-0.1% per year)

= 2024 Q1: £688bn

11 Jul 2024. Chart by Martin Wheatcroft FCA. Design by Sunday.

Source: ONS, ‘UK quarterly national accounts: Jan-Mar 2024’.

© ICAEW 2024

My chart this week is on the change in quarterly GDP over the past five years, analysing the change between GDP as calculated by the Office for National Statistics (ONS) of £549bn in the first quarter of 2019 and £688bn in the first quarter of 2024, a net increase of £139bn.

Inflation, at 4% a year on average over the past five years, was the largest contributor to the change, being £120bn out of £139bn of the increase. An increase in population of more than 0.6% a year added a further £22bn, but this was offset by £3bn from negative economic growth per capita of 0.1% on average over the past five years.

Breaking down the £19bn change resulting from economic growth (0.5% a year on average), between population change and economic growth per capita in this way highlights how net inward migration has been one of the most significant drivers of the UK economy over the past five years.

While there are multiple reasons why the electorate decided to vote in a new government in the recent UK general election, the £41 reduction in quarterly GDP per capita over the past five years after adjusting for inflation – and the associated drop in living standards – to £9,994 per person in 2024 Q1 is likely to have been one of them.

The good news is that the next five years may be better, with monthly GDP up by 0.40% over the course of April and May 2024. This can be broken down between an estimated population growth of 0.16% and an increase in monthly GDP per capita over the two months of 0.24%, a positive sign, especially in the light of the latest ICAEW Business Confidence Monitor reporting that business confidence has risen to its highest level in over two years.

This chart was originally published by ICAEW.

ICAEW chart of the week: Debt on the fourth of July

My chart for ICAEW this week ‘celebrates’ US Independence Day by setting out the latest congressional projections for federal debt.

Debt on the fourth of July.
ICAEW chart of the week.

Column chart showing projected US federal debt held by the public in $tn (plus as % of GDP) between 2023 and 2034.

2023: $26.2tn (97.3%).
2024: $28.2tn (99.0%).
2025: $30.2tn (101.6%).
2026: $32.1tn (104.1%).
2027: $33.9tn (106.2%).
2028: $36.0tn (108.6%).
2029: $38.0tn (110.5%).
2030: $40.2tn (112.7%).
2031: $42.5tn (114.8%).
2032: $45.0tn (117.1%).
2033: $47.8tn (119.9%).
2034: $50.7tn (122.4%).

04 Jul 2024. Chart by Martin Wheatcroft FCA. Design by Sunday.
Source: Congressional Budget Office, ONS, ‘An Update to the Budget and Economic Outlook, June 2024'.

© ICAEW 2024

Two hundred and forty-eight years ago, on 4 July 1776, the United States of America declared its independence from Great Britain, inheriting debts used to finance the revolutionary war but without any tax raising powers to fund repayment of the amounts owed. This was addressed by the adoption of the US Constitution in 1789, which enabled Secretary of the Treasury Alexander Hamilton to raise taxes, start repaying those initial debts, and issue new debt to finance a fledgling nation.

My chart this week illustrates how the US federal government has continued to borrow since then, with the Congressional Budget Office (CBO) reporting that US federal debt held by the public was $26.2tn or 97.3% of GDP in September 2023, on track to reach $28.2tn or 99.0% of GDP on 30 September 2024, before rising to a projected $50.7tn or 122.4% on 30 September 2034.

Debt on 4 July this year is estimated to be close to $27.8tn.

The projected rise in debt held by the public over the coming decade is based on extrapolating the gap between federal revenues and spending of around $160bn a month in the current financial year, based on tax and spending legislation enacted at 12 May 2024 together with the CBO’s own assessment of the administration’s financial plans (for example over student loan relief) and assumptions around factors such as interest rates and economic growth.

However, the CBO is keen to stress that these numbers are not a forecast. They say: “The baseline projections are meant to provide a benchmark that policymakers can use to assess the potential effects of changes in policy; they are not a forecast of future budgetary outcomes. Future legislative action could lead to markedly different outcomes. But even if federal laws remained unaltered for the next decade, actual budgetary outcomes would probably differ from CBO’s baseline projections, not only because of unanticipated economic conditions, but also because of the many other factors that affect federal revenues and outlays.”

The challenge for the US is that despite almost 250 years of taxation with representation, that representation finds it difficult to raise taxes to bring debt down, often choosing to cut taxes and increase borrowing instead.

Whether that will change, or whether debt markets force it to change, remains a big unknown in the experiment commenced by George Washington and Alexander Hamilton all those years ago.

This chart was originally published by ICAEW.

New government to inherit tough public finances

Public sector net debt has passed £2.7tn for the first time. In May the debt increased by £49bn from £2,694bn to £2,743bn, 51% higher than it was in March 2020 at the start of the pandemic.

The monthly public sector finances for May 2024 released by the Office for National Statistics (ONS) on Friday 21 June 2024 reported a provisional deficit for the first two months of the 2024/25 financial year of £33.5bn, £1.5bn better than the £35.0bn predicted by the Office for Budget Responsibility (OBR) and £0.4bn higher than in April and May 2023.

An ICAEW spokesperson said: “Today’s numbers show that public sector net debt continues to grow, up from £2.69tn in April to £2.74tn in May, the first time it has exceeded £2.7tn.

“Net debt is now 51% higher than it was at the start of the pandemic in March 2020, and 167% higher than it was in March 2010, pushed up by the spikes in spending during the pandemic and to offset energy bills, as well as borrowing to fund day-to-day spending and investment. High borrowing costs and the financial consequences of more people living longer mean that the public finances are significantly weaker and less resilient than they were 14 years ago.

“When the country goes to the polls on 4 July, the reality is that whoever wins power will inherit an extremely challenging fiscal position that will hamper their ability to turn the country around.”

Month of May 2024

Taxes and other receipts amounted to £85.1bn in May 2024, up 2% compared with the same month last year, while total managed expenditure was also 2% higher at £100.1bn.

The resulting fiscal deficit of £15.0bn for the month was £0.8bn higher than in May 2023.

Financial year to date

As summarised in Table 1, total receipts in April and May 2024 of £170.4bn were 2% higher than in the same two months last year, with the cuts to employee national insurance rates offset by higher income tax, corporation tax, and non-tax receipts.

Table 1: Summary receipts and spending

Two months to	May 2024 £bn	May 2023 £bn	Change %
Income tax	38.2	36.8	+4%
VAT	33.9	33.6	+1%
National insurance	25.9	28.2	-8%
Corporation tax	16.6	15.5	+7%
Other taxes	36.0	35.2	+2%
Other receipts	19.8	18.5	+7%
Total receipts	170.4	167.8	+2%
Public services	(108.3)	(104.5)	+4%
Welfare	(51.4)	(49.1)	+5%
Subsidies	(5.2)	(7.8)	-33%
Debt interest	(21.4)	(21.6)	-1%
Gross investment	(17.6)	(17.9)	-2%
Total spending	(203.9)	(200.9)	+1%
Deficit	(33.5)	(33.1)	+1%

Table 1 also shows how total managed expenditure for the two months of £203.9bn was up by more than 1% compared with April and May 2023, with higher spending on public services and welfare offset by lower energy-support subsidies and marginally lower debt interest. The latter was driven by significantly lower indexation on inflation-linked debt offsetting the much higher rates of interest payable on variable rate and refinanced fixed-rate debt.

Table 2: Public sector net debt

Two months to	May 2024 £bn	May 2023 £bn
Deficit	(33.5)	(33.1)
Other borrowing	(10.2)	2.1
Debt movement	(43.7)	(31.0)
Opening net debt	(2,699.2)	(2,539.7)
Closing net debt	(2,742.9)	(2,570.7)
Net debt/GDP	99.8%	96.1%

Public sector net debt as of 31 May 2024 was £2,743bn or 99.8% of GDP, just under £44bn higher than at the start of the financial year. The increase reflects borrowing to fund the deficit of £33.5bn and £10.2bn borrowed to fund lending by government and other cash requirements, net of loan recoveries.

Public sector net debt was £172bn or 7% higher than a year previously, and 3.7 percentage points higher in relation to the size of the economy.

Public sector net debt is £928bn or 51% more than the £1,815bn reported for 31 March 2020 at the start of the pandemic and £1,715bn or 167% more than the £1,028bn net debt amount as of 31 March 2007 before the financial crisis, reflecting the huge sums borrowed over the last 14 years.

Public sector net worth, the new balance sheet metric launched by the ONS in 2023, was -£726bn on 31 May 2024, comprising £1,613bn in non-financial assets and £1,074bn in non-liquid financial assets minus £2,743bn of net debt (£300bn liquid financial assets – £3,043bn public sector gross debt) and other liabilities of £670bn. This is a £47bn deterioration from the start of the financial year and is £95bn more negative than the -£631bn net worth number for May 2023.

Revisions and other matters

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled.

The latest release saw the ONS reduce the reported deficit for April 2024 by £2.1bn from £20.5bn to £18.4bn and revise the deficit for the year to March 2024 up by £0.7bn from £121.4bn to £122.1bn as estimates of tax receipts and expenditure were updated for better data.

This article was originally published by ICAEW.