ICAEW chart of the week: Banknotes in circulation

Our chart illustrates how banknotes in circulation have grown during lockdown despite a decline in cash usage. Will the new £50 note launched on Wednesday cause a further rise?

Chart showing steady growth in banknotes in circulation from £26bn in 2001 to £69bn in 2017, followed by three flat years including £70bn in 2019, before a jump to £80bn in 2021. The latter comprised £18bn in £50 notes, £45bn in £20 notes, £15bn in £10 notes and £2bn in £5 notes.

At 28 February 2021, there were 357m paper £50 notes worth £18bn, 2,237m polymer and paper £20 notes worth £45bn, 1,540m polymer £10 notes worth £15bn and 407m polymer £5 notes worth £2bn – a total of £80bn in circulation. This excludes around £8bn in Scottish and Northern Irish banknotes and in the order of £5bn in coins.

With around 60m people in England and Wales (as Scotland and Northern Ireland have their own banknotes), this is equivalent to approximately six £50 notes, 37 £20 notes, 26 £10 notes and seven £5 notes per person. Of course, not all of these are in purses, wallets or stuck down the back of sofas – many live in cash drawers and safes at high street banks, retailers and other businesses, as well as a certain proportion that have migrated around the world.

There has been some speculation about the reasons for the jump in cash holdings during the pandemic, which appears counterintuitive given the significant decline in cash usage as contactless and online payments have become more popular. Part of this may be hoarding in the context of a national emergency, while others have speculated that criminal enterprises have struggled to launder cash at a time when many retail businesses have been closed. Another potential driver is the crossover between the old and new £20 notes, with the polymer £20 launched in February 2020 while the paper note it replaced is still in circulation. With the announcement that both £20 and £50 paper notes will be withdrawn in September 2022, there is likely to be a flood of cash coming back to the Bank of England next year.

The new Turing £50 note completes the changeover from paper to polymer, joining the Churchill £5, the Austen £10 and the Turner £20 polymer notes. The Adam Smith £20 note and the Boulton-Watt £50 note are the last paper notes still in circulation.

Speaking at Bletchley Park, where Turing carried out his famous codebreaking work, Bank of England Governor Andrew Bailey said: “Our banknotes celebrate some of our country’s most important historical figures. That’s why I am delighted that Alan Turing features on the new polymer £50 note. Having undertaken remarkable codebreaking work here at Bletchley Park during the Second World War, he went on to pioneer work on early computers, as well as making some ground-breaking discoveries in the field of developmental biology. He was also gay and was treated appallingly as a result. Placing him on this new banknote is a recognition of his contributions to our society, and a celebration of his remarkable life.”

More information on banknotes is available from the Bank of England.

This article was originally published by ICAEW.

Fiscal deficit of £24.3bn in May as COVID spending trends downward

COVID-related spending continues to drive borrowing even as receipts approach pre-pandemic levels, with debt up by £24.9bn to £2,195.8bn or 99.2% of GDP in May 2021.

The latest public sector finances released on Tuesday 22 June reported a deficit of £24.3bn for May 2021, as COVID-related spending continued to weigh on the public finances, albeit at a reduced rate. An improvement from the £43.8bn reported for the same month last year during the first lockdown, it was still significantly higher than the £5.5bn reported for May 2019.

The Office for National Statistics revised the reported deficit for the year ended 31 March 2020 down by £1.1bn from £300.3bn to £299.2bn, still a peacetime record. The final total is still expected to exceed £300bn as the ONS has yet to include in the order of £27bn of bad debts on COVID-related lending in this number. Estimates will be refined further over the next few months.

Cumulative receipts in the first two months of the financial year of £128.6bn were £15.9bn or 14% higher than a year previously, but this was still £0.7bn or 0.5% below the level seen a year before that in April and May 2019. At the same time cumulative expenditure of £165.8bn was £20.9bn or 11% lower than the first two months of 2020-21, but £37.2bn or 29% higher than the same period two years ago.

Ultra-low interest rates continued to benefit the interest line, which at £9.1bn in April and May 2021 was £0.1bn or 1% lower than April and May 2020 and £1.5bn or 14% lower than April and May 2019.

Net public sector investment was slightly lower than last year with £7.1bn invested in April and May 2021, down £0.8bn or 10% from a year before but up £0.9bn or 15% from two years ago.

This combined to produce a cumulative deficit for the first two months of the 2021-22 financial year of £53.4bn, £37.7bn or 41% below that of the same period a year previously, but up £37.3bn or 232% from the total for April and May 2019.

Public sector net debt increased to £2,195.8bn or 99.2% of GDP, an increase of £58.4bn since March, reflecting £5.0bn of additional borrowing over and above the deficit, principally to fund coronavirus loans to businesses. Debt is £259.1bn or 13% higher than a year earlier and £427.2bn or 24% higher than in April and May 2019.

Alison Ring, ICAEW Public Sector Director, said: “With numbers for the second month of the financial year now in, we can see tax receipts are starting to approach pre-pandemic levels, while borrowing continues to increase despite COVID-19 spending starting to decrease. 

“The public finances remain in a fragile state, and ongoing debates about education spending, adult social care and the pensions triple-lock highlight the difficult decisions facing Rishi Sunak as he seeks to balance pressures on our public services with still growing levels of public debt. The prospects of the Chancellor raising taxes in the Autumn Budget appear to be increasing.”

Images showing a table of the fiscal numbers for 2 months to May 2021 and variances against the prior year and two years. Click on link at end of this post to the ICAEW website which has a readable version of the table.
Images showing a table of the fiscal deficit by month, including receipts, expenditures interest and net investment. Click on link at end of this post to the ICAEW website which has a readable version of the table.

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 ONS made a number of revisions to prior month and prior year fiscal numbers to reflect revisions to estimates. These had the effect of reducing the reported fiscal deficit for April 2021 from £31.7bn to £29.1bn and the deficit for the twelve months ended 31 March 2021 from £300.3bn to £299.2bn.

This article was originally published by ICAEW.

ICAEW chart of the week: The global vaccination challenge

This week’s chart looks at how much progress there has been in vaccinating an estimated global population of 7.8bn people, and how much is left to be done.

Chart showing vaccination status across Europe, North America, China, India, Rest of Asia, Africa and South America. (See text below for details).

According to Our World in Data as of 15 June 2021, 727m people are fully vaccinated, 884m are partly vaccinated and 3,847 are not yet vaccinated, based on a target of 70% of a world population of 7,795m.

With a vaccination target of 70% needed to prevent the further spread of the virus, we need to vaccinate just under 5.5bn people. So far, only 727m (9% of the global population) have been fully vaccinated, mostly in China (223m), North America (169m) and Europe (158m).

Only relatively small numbers have been fully vaccinated in India (47m), the rest of Asia (73m), South America & Oceania (46m) and Africa (11m). A further 884m (11%) have been partly vaccinated, comprising China (399m), India (156m), Europe (111m), rest of Asia (73m), North America (67m), South America & Oceania (59m) and Africa (19m).

This leaves 3,847m people (49%) yet to be vaccinated, with 1,128m in Asia excluding China and India, 909m in Africa, 763m in India, 386m in China, 255m in Europe, 227m in South America and 179m in North America.

At the current run rate of around 33m vaccinations a day and assuming two doses are needed for each person, it should in theory take around 260 days or just under nine months to deliver the 8.5bn remaining doses needed. With some vaccinations requiring only one dose and expanded manufacturing capacity, the potential is that the world could be vaccinated even sooner than that.

In practice, it will not be so easy. The current level of vaccinations is being driven by China, which is vaccinating around 16m of its population a day at the moment, and whether many countries in the rest of Asia and Africa can get up to proportionately similar levels is not certain. Many countries will struggle to afford the vaccines they need and the 1bn doses just announced by the G7 will only go so far. Logistically, there are some big challenges in getting vaccines into arms in many parts of the world.

That is why some are saying that it will take until the end of 2022 to fully vaccinate the 70% of people needed to protect against the virus. Let’s hope that they are just being cautious, and the momentum can be maintained to get the world vaccinated even sooner than that.

Source: Our World in Data COVID-19 dataset extracted on 15 June 2021 – Mathieu, E., Ritchie, H., Ortiz-Ospina, E. et al. A global database of COVID-19 vaccinations. Nat Hum Behav (2021).

This chart was originally published by ICAEW.

ICAEW chart of the week: Rail journeys

This week’s chart tracks railway usage, illustrating how passenger journeys in Great Britain dropped by 77.7% from 1,739m trips in 2019-20 to 388m in the year to 31 March 2021.

Bubble chart showing railway passenger journeys. 1872: 407m - 1920: 2,186m - 1982: 630m - 2019-20: 1,739m - 2020-21: 388m.

The current number of journeys is the lowest since records began in 1872, when 407m trips were taken at the start of the heyday of rail. Passenger numbers grew until 1920 and a peak of 2,186m journeys, before the advent of the motor car saw trips decline gradually over the following 60 or so years until the nadir of 630m journeys in 1982. Since then, passenger journeys have grown rapidly up to 2016-17 (1,727m journeys) before levelling off, followed by the huge decline in the most recent financial year.

Passenger numbers have started to rise again in the last few months but the big question is whether they will return to their pre-pandemic level or if there will be a permanent decline, with fewer commuters as working patterns change and fewer business and shopping trips as online retail takes over?

The cost of running empty trains has been significant for the now ‘nationalised’ railway, with train operators converted from franchise businesses into management-contract concessions alongside the already publicly owned rail infrastructure owner Network Rail. Emergency payments to train operators in 2020-21 amounted to just over £7bn, adding to the cost of an already taxpayer-subsidised railway system in Great Britain.

The difficulty for the new Great British Railways organisation that will take charge of the railways over the next couple of years will be in finding ways to bring passengers back so that neither subsidies nor prices have to go up permanently.

This chart was originally published by ICAEW.

NAO: UK ‘lacked playbook’ for emergencies like the pandemic

National Audit Office says the UK government acted at unprecedented speed to respond to the virus, but needs to build resilience and management capabilities if it is to cope better with future emergencies.

The National Audit Office (NAO) issued a report on ‘Initial learning from the government’s response to the COVID-19 pandemic’ on 13 May 2021. This attempts to identify key lessons for the government to take if it is to improve the UK’s ability to respond to future emergencies.

The report sets out six themes where the NAO believes that the government could learn from the experience of the covid-19 pandemic, which has involved measures with estimated lifetime costs of £372bn so far.

Risk management

  • Identifying the wide-ranging consequences of major emergencies and developing playbooks for the most significant impacts.
  • Being clear about risk appetite and risk tolerance as the basis for choosing which trade-offs should be made in emergencies.

Transparency and public trust

  • Being clear and transparent about what the government is trying to achieve, so that it can assess whether it is making a difference.
  • Meeting transparency requirements and providing clear documentation to support decision-making, with transparency being used as a control when other measures, such as competition, are not in place.
  • Producing clear and timely communications.

Data and evidence

  • Improving the accuracy, completeness and interoperability of key datasets and sharing them promptly across delivery chains.
  • Monitoring how programmes are operating, forecasting changes in demand as far as possible, and tackling issues arising from rapid implementation or changes in demand.
  • Gathering information from end-users and front-line staff more systematically to test the effectiveness of programmes and undertake corrective action when required.

Coordination and delivery models

  • Ensuring that there is effective coordination and communication between government departments, central and local government, and private and public sector bodies.
  • Clarifying responsibilities for decision-making, implementation and governance, especially where delivery chains are complex and involve multiple actors.
  • Integrating health and social care and placing social care on an equal footing with the NHS. Balancing the relative merits of central, universal offers of support against targeted local support.

Supporting and protecting people

  • Understanding to what extent the pandemic and government’s response have widened inequalities, and taking action where they have.
  • Providing appropriate support to front-line and other key workers to cope with the physical, mental and emotional demands of responding to the pandemic.

Financial and workforce pressures

  • Placing the NHS and local government on a sustainable footing, to improve their ability to respond to future emergencies.
  • Ensuring that existing systems can respond effectively and flexibly to emergencies, including provision for spare or additional capacity and redeploying staff where needed.
  • Considering which COVID-19-related spending commitments are likely to be retained for the long term, and what these additional spending commitments mean for long-term financial sustainability.

The report does not contain any new substantive recommendations as it in effect brings together insights from 17 individual reports conducted by the NAO into different aspects of the government’s response to the pandemic. However, it is helpful in identifying some of the common strands emerging from the NAO’s work, such as the importance of effective cross-government working.

Perhaps the most significant finding is that the government lacked a playbook for many aspects of its response, with pre-existing pandemic contingency planning not including plans for identifying and supporting a large population advised to shield, employment schemes, financial support to local authorities and managing mass disruption to schooling.

Alison Ring, director for public sector at ICAEW, commented: “The NAO is careful to balance the negatives it saw in the government’s response to coronavirus with positives such as the design and roll-out at speed of large-scale interventions under huge pressure. However, it is clear that the NAO believes that the UK was underprepared for a high-impact low-likelihood event like the pandemic, and the lack of detailed plans in key areas hampered the government’s response.

“While accepting that no plan can cover all the specific circumstances of every potential crisis, the NAO nevertheless believes that more detailed contingency planning can improve the government’s ability to respond to future emergencies.” 

For more information, the full report is available from the NAO website.

This article was originally published by ICAEW.

ICAEW chart of the week: Household savings

Will there be a rush to spend the £7,000 in household net cash savings built up over the course of the pandemic?

Bar chart showing per household net cash savings by month. Apr 2019: -£25, £45, £0; Jul 2019: -£25, £105, £100; Oct 2019: £5, £55, -£65; Jan 2020: -£55, £35, £555; Apr 2020: £1,020, £1,235, £640; Jul 2020: £455, £465, £295; Oct 2020: £315, £275, £475; Jan 2021: £460, £370, £165; Apr 2021: £280.

The #icaewchartoftheweek is on household savings built up over the course of the pandemic, illustrating how households have saved an average of £7,000 over the last fourteen months. A big question for the economic recovery is whether households will splash the cash once restrictions are lifted, providing a consumer-led boost to the economic recovery?

According to Bank of England statistics released on 2 June 2021, since the start of the pandemic in March 2020 up to April 2021 households have saved or repaid debts in the order of £195bn or an average of £14bn a month. This compares with £4.8bn or £0.4bn a month in the 11 months to February 2020, when cash savings were mostly offset by borrowing on consumer credit or mortgages.

With approximately 27.8m households in the UK according to the Office for National Statistics, this means that families have saved an average of just over £7,000 or £500 per month since the first lockdown in March 2020, compared with approximately £175 or £15 a month in the eleven months prior to the pandemic.

This reflects many lost opportunities for spending, with fewer holidays and nights out possible because of lockdown restrictions. Uncertainty about future economic prospects is likely to have also played a part, with many individuals cutting back on discretionary spending ‘just in case’.

Of course, there is no such thing as an average household. More prosperous families will have saved up a lot more than the £7,000 average and so are likely to have the capacity to spend a lot more if they want to, while many individuals will have run down savings or borrowed to survive through a difficult period.

For those fortunate families who are in a better financial situation, the big economic question is whether they will take the money they have saved from not going on holiday or going out over the course of the last year and put it into their pensions or other forms of investment – or will they choose to splurge on enjoying themselves once restrictions are fully lifted?

The (almost) £200bn question.

This chart was originally published by ICAEW.

Source detail

Source data from Bank of England, Money and Credit – April 2021 (published 2 June 2021) divided by an estimated 27.8m households in the UK per the Office for National Statistics.

Household net cash savings = Seasonally adjusted changes in household M4 bank and building deposits plus changes in National Savings & Investments holdings (together ‘cash savings’), less seasonally adjusted changes in consumer credit and less seasonally adjusted changes in mortgage debt.

Total for 11 months to Feb 2020: cash savings £62.6bn less increases in consumer credit £11.5bn less increase in mortgage debt £46.3bn = £4.8bn or £175 per household.

Total for 14 months to April 2021: cash savings £235.2bn plus net repayments of consumer credit £23.1bn less increase in mortgage debt £63.5bn = £194.8bn or £7,005 per household.

April fiscal deficit drops to £31.7bn as new financial year gets underway

The latest public sector finances reported a deficit of £31.7bn for April 2021, as COVID-related spending continued to weigh on the public finances.

Although an improvement from the £47.3bn deficit reported for the same month last year during the first lockdown, the figures are still significantly higher than the £10.6bn reported for April 2019.

The Office for National Statistics also revised the reported deficit for the year ended 31 March 2020 down by £2.8bn from £303.1bn to £300.3bn, still a peacetime record. The ONS has yet to include in the order of £27bn of bad debts on COVID-related lending in this number and estimates will be refined further over the next few months.

Receipts in April 2021 of £64.6bn were £7.8bn or 14% higher than a year previously, but this was still £1.1bn or 2% below the level seen a year before that in April 2019. At the same time, expenditure of £83.3bn was £9.3bn or 10% lower than April 2020, but £18.7bn or 29% higher than two years before.

Ultra-low interest rates continued to benefit the interest line, which at £5.3bn in April 2021 was £0.2bn or 4% lower than April 2020 and £1.5bn or 22% lower than April 2019.

Net public sector investment, as planned, has continued to grow with £7.7bn invested in April 2021, up £1.7bn or 28% from a year before and £2.8bn or 57% from two years ago.

This combined to produce a deficit for the first month of the 2021-22 financial year of £31.7bn, £15.6bn or 33% below that of the same month a year previously, but £21.1bn or 199% higher than April 2019.

Public sector net debt increased to £2,171.1bn or 98.5% of GDP, an increase of £33.6bn over the course of April, reflecting £1.9bn of additional borrowing over and above the deficit, principally to fund coronavirus loans to businesses and tax deferral measures. Debt is £304.6bn or 16% higher than a year earlier and £410.2bn or 23% higher than in April 2019.

The net cash outflow (the ‘public sector net cash requirement’) for the month was £34.5bn.

Commenting on the figures, ICAEW’s Public Sector Director Alison Ring said: “It is difficult to read too much into the first month’s numbers in a new financial year, but the Chancellor is likely to be relieved that the gap between receipts and spending is narrower than that seen last year during the first lockdown. But the public finances are not out of the woods, with tax receipts still below pre-pandemic levels and COVID-related spending continuing to drive up borrowing. 

“The focus over the next few months is likely to be on the next Spending Review, which will decide on future public spending and investment with the long-awaited social care funding strategy now anticipated to be announced later this year. However, the need to address the long-term unsustainability of the public finances shouldn’t be forgotten.”

Image showing receipts, expenditure, interest, net investment, deficit, other borrowing, changes in net debt, and net debt for April 2021 public sector finances, together with variances against April 2020 and April 2019.

For a readable version of the table click on the link to the ICAEW article at the end of this post.

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 ONS made a number of revisions to prior month and prior year fiscal numbers to reflect revisions to estimates and changes in methodology. These had the effect of reducing the reported fiscal deficit in the twelve months ended 31 March 2021 from £303.1bn to £300.3bn.

For further information, read the public sector finances release for April 2021.

This article was originally published by ICAEW.

ICAEW chart of the week: UK inflation

This week’s chart takes a look at UK inflation following news that the annual rate of inflation more than doubled in April to 1.5%, more than twice the 0.7% reported for the previous month.

Chart: CPI increasing from less than 0.5% in Apr 2016 to over 3% in Oct 2017 before falling to close to zero in Oct 2020, zigzagging to 0.7% in Mar 2021 and then jumping to 1.5% in Apr 2021. 

Compared with five year annualised rate gradually increasing from 1.5% in 2016 to close to just under 2% now.

The headline rate of inflation doubled this week from 0.7% to 1.5%, giving rise to concerns about the economic recovery. Economists aren’t getting worried just yet, but are they right to be so sanguine? 

This scale of this jump partly reflects the timing of the first and current lockdowns, as inflation is typically measured by comparing prices with the same month a year previously, with significant changes both this year as the UK started to emerge from its third lockdown and a year ago as it was entering its first. Some commentators have pointed out that the temporary cut in VAT on restaurant food and leisure activities help prevent the jump from being even higher.

Our chart compares the annual rate of Consumer Price Index (CPI) inflation with a more stable measure, which is the annualised rate of CPI inflation over a five-year period. This is less susceptible to short-term swings in the economy, but as the chart shows, medium-term inflation has been gradually rising over the past five years even as headline rates on an annual basis fell over the last four years before the pandemic.

This perhaps explains some of the relaxed responses from economists about the sudden burst in inflation in the last month, given the annual rate of increase still remains below the medium-term trend, despite the current extraordinary economic circumstances.

Of course, that is not to say that inflation might not become a problem as the UK emerges further from lockdown. Many businesses have closed over the last year, particularly in the retail sector, while those that have survived will be looking to repair their balance sheets – a recipe for higher prices as constrained supply meets higher post-lockdown demand from consumers. Only time will tell whether this will feed into sustained higher levels of inflation or will jump be a temporary adjustment that falls out of the headline rate again in a year or so’s time.

ICAEW chart of the week: UK monthly GDP

This week’s chart takes a look at the rebound in UK gross domestic product in March 2021, despite the country remaining in lockdown.

Chart showing GDP between Mar 2019 and April 2021: from approximately £195bn a month for the first year, before dipping to just over £145bn in April 2020 and then recovering to around £185bn, then falling to just under £180bn and return to almost £185bn in April 2021 with a monthly increase of +2.1%.

UK GDP jumped 2.1% in March 2021 according to the Office for National Statistics. A positive sign but, as our chart of the week illustrates, there is still a long way to go to get back to pre-pandemic levels of economic activity. 

The #icaewchartoftheweek is on the economy this week, taking a look at how the latest economic statistics from the Office for National Statistics indicate a rebound in GDP in March 2021 even as the country remained in lockdown. This is a positive sign as the UK starts to emerge from the pandemic and people start to return to ‘normality’, albeit a new normal that is likely to be different to what came before.

However, the chart also makes clear how far the UK still has to go to return to pre-pandemic levels of economic activity, with the anticipated square-root shaped recovery stopped in its tracks in the last quarter of 2020 as COVID-19 resurged and restrictions on daily life were reimposed. The 2.1% real-terms growth in GDP in March follows a pattern of ups and downs in recent months with a fall of 2.2% in November, an increase of 1.0% in December, a fall of 2.5% in January, and an increase of 0.7% in February.

With the progress made in combating the virus over the last few months enabling lockdown restrictions to be progressively lifted across the UK, the hope is that March will be the second month on a more sustainable upward curve.

This chart was originally published by ICAEW.

ICAEW chart of the week: G7 economies

Our chart this week illustrates how in representing more than half of the world economy, decisions taken by the G7 can have a significant impact on the entire planet.

The G7 summit hasn’t formally started yet, but Group of Seven (G7) ministers and their guests have already started to meet ahead of the main event next month, albeit subject to quarantine restrictions.

The #icaewchartoftheweek illustrates how important this gathering is by highlighting how the seven major democratic nations and the European Union that together comprise the G7 represent more than half the global economy – and even more than that, once four invited guest nations are included.

Circular 'sunburst' chart showing G7 nations (USA, Japan, Germany, UK, France, Italy and Canada plus remaining EU nations), G7 guest nations (India, South Korea, Australia and a spoke for South Africa) and the rest of the world (China, Russia and Brazil followed by all the rest).

Overall, the G7 economies are forecast by the IMF to generate £35.9tn of economic activity in 2021 at current prices, 54% of forecast global GDP of £66.8tn. This comprises the economies of seven individual member nations: the USA (£16.3tn), Japan (£3.8tn), Germany (£3.1tn), the UK (£2.2tn), France (£2.1tn), Italy (£1.5tn) and Canada (£1.3tn), together with the 24 other EU member states (£5.6tn).

The guests invited to the 47th G7 summit in Cornwall are expected to generate a further £4.9tn or 7% of global GDP in 2021, bringing the total economic activity represented at the summit to £40.8tn or 61% of the total. They are India (£2.2tn), South Korea (£1.3tn), Australia (£1.2tn) and South Africa (£0.2tn).

Not represented at the G7 are China (£12.2tn), Russia (£1.2tn) and Brazil (£1.1tn) and around 160 other nations across the globe (£11.5tn in total).

The G7 summit presents an opportunity for the 11 national leaders and 2 EU representatives involved to shape the direction for much of the world, with discussions expected to range from saving the planet through to transparency in financial and non-financial reporting.

This chart was originally published by ICAEW.