ICAEW chart of the week – Page 2

ICAEW chart of the week: Tax burden rising

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

ICAEW chart of the week: Table burden rising.

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

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

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

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

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

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

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

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

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

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

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

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

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

This chart was originally published by ICAEW.

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

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

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

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

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

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

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

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

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

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

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

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

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

This chart was originally published by ICAEW.

ICAEW chart of the week: GDP revisions

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

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

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

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

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

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

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

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

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

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

This chart was originally published by ICAEW.

ICAEW chart of the week: Productivity

My chart for ICAEW this week looks at how productivity growth has slowed significantly over the past quarter of a century and asks what can be done to turn it around.

One of the biggest challenges facing the UK economy is the decline in productivity growth over the past quarter of a century as illustrated by my chart of the week for ICAEW. This shows how the average annual change over five years in quarterly output per hours worked in March 1980 was the equivalent of 2.1% a year higher than it was in the quarter to March 1975, five years earlier.

The chart also shows how output per hour rose by an annual average of 3.0% a year to March 1985, 1.7% to March 1990, 2.5% to March 1995, and 2.8% to March 2000.

Unfortunately, productivity growth has declined since then with quarterly output per hour increasing by an average of 1.6% a year over the five years to March 2005, 0.8% to March 2010, 0.2% to March 2015, 0.8% to March 2020 and 0.3% to March 2025.

These percentages go a long way to summarising how the UK economy has stalled since the start of the century, especially from the start of the financial crisis in 2007 through the austerity years, Brexit, the pandemic and the energy and cost-of-living crisis. We are producing less value per hour worked even as the population has grown and technology has further advanced.

While the crises we have gone through may partly explain some of the reduction in historical productivity growth over the last quarter of a century, the big question worrying many economists is why productivity has not returned to anywhere close to the levels seen before the turn of the century, or to even to those seen in the USA where, until recently, productivity growth has continued to hold up despite everything.

The Office for Budget Responsibility’s (OBR) most recent economic and fiscal forecast published in March 2025 was based on a central assumption of productivity growth averaging around 1.0% a year over five years to March 2030, significantly lower than the levels seen in the last century. There have been suggestions that the OBR intends to reduce this assumption when it updates its forecasts for the Autumn Budget 2025 in November, adding to the Chancellor’s headaches when she arrives at the despatch box.

One reason for the much lower levels of productivity growth this century may be the demographic change that has resulted in a much higher proportion of the population in retirement and a much older workforce on average. Another may be a question about whether the advent of the smart phone and ‘always on’ connectivity to the office has actually hindered rather than helped people be productive. A further reason could be the increasingly dire state of the public finances with debt rising from less than 35% of GDP in March 2005 to close to 95% of GDP, hampering the government’s ability to deliver the public services we need to thrive, in addition to raising the tax burden to historically high levels.

However, many of the reasons are likely to be driven by the challenges identified by ICAEW’s business growth campaign. This has identified how it has become increasingly too uncertain, too difficult, and too expensive to do business in the UK and calls for fundamental reform of tax, regulation and economic policy to support stronger business growth going forward.

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

This chart was originally published by ICAEW.

ICAEW chart of the week: Business confidence dips further

My chart for ICAEW this week looks at how business confidence has entered negative territory, driven by uncertainty about both the economic outlook and potential tax rises.

ICAEW chart of the week: Business confidence

A step chart showing the quarter-by-quarter change in the ICAEW Business Confidence Monitor Index between Q2 2023, Q2 2024 and Q2 2025.

Q2 2023 index: +6.1 positive business confidence.
Q3 2023 change: -3.2.
Q4 2023 change: +1.3.
Q1 2024 change: +10.2.
Q2 2024 change: +2.3.
=
Q2 2024 index: +16.7 positive business confidence.
Q3 2024 change: -2.3.
Q4 2024 change: -14.2.
Q1 2025 change: -3.2.
Q2 2025 change: -1.2.
=
Q2 2025 index: -4.2 negative business confidence.

19 Feb 2025. Chart by Martin Wheatcroft FCA. Design by Sunday.

Source: ICAEW, 'Business Confidence Monitor, Q2 2025'.

One of the major themes of ICAEW’s growth campaign is how uncertainty for businesses can be tackled in order to improve business sentiment and hence the appetite of businesses to invest.

My chart for ICAEW this week highlights how business confidence as measured by the ICAEW Business Confidence Monitor (BCM) Index rose from +6.1 in the second quarter 2023 to +16.7 a year later, before crashing over the past year to -4.2 in Q2 2025.

The +6.1 score in Q2 2023 was a significant improvement over the -20.1 registered half a year earlier in Q4 2022 at the height of the cost-of-living crisis. It was also better than the +4.1 pre-pandemic average and +5.0 overall average measured by the BCM Index.

As the chart shows, the index declined in Q3 2023 by -3.2 (to 2.9) but then rose by 1.3 in Q4 2023 (to 4.2), by 10.2 in Q1 2024 (to 14.4), and by a further 2.3 in the second quarter of 2024 to reach a peak of 16.7 following the general election and the consequent change in government.

Unfortunately, business sentiment has declined rapidly over the past year, with the BCM Index falling by 2.3 in Q3 2024 (back to 14.4) and by a huge 14.2 in the fourth quarter last year (to 0.2, only just positive). The index turned negative this year with a decline of 3.2 in Q1 2025 (to -3.0) and then a further fall of 1.2 in Q2 2025 to reach a score of -4.2 in the most recent calendar quarter.

According to the BCM commentary, the business sentiment score of -4.2 in Q2 2025 marked a fourth consecutive decline during a period of heightened global uncertainty and weakening UK activity. Confidence among exporters was particularly downbeat, falling into negative territory for the first time in almost three years.

Domestic sales growth had slowed during the second quarter and businesses had lowered their expectations about domestic and exports sales for the coming year. Concerns about customer demand and competition in the marketplace had risen sharply, while regulatory requirements continued to be the second biggest challenge for businesses.

The tax burden remained the greatest growing challenge in Q2 2025, with the reported rate close to the survey high, and these concerns rose to new record highs in some key sectors.

Expectations for employment growth in the year ahead dropped to the lowest level since Q3 2020, but businesses expected salary growth to continue to ease, adding to the more positive outlook for inflationary pressures than reported in the previous quarter.

Confidence declined in most sectors surveyed and sentiment remained highly unequal, with confidence most negative in manufacturing and engineering, and retail and wholesale; and most positive in information and communication, and construction.

More detail about business confidence by sector and by regions is available in the ICAEW Business Confidence Monitor section of the ICAEW website.

More detail on how it is too difficult, expensive and uncertain to do business in the UK, and ICAEW’s call for the government to do what it can to streamline regulations, reduce unnecessary costs, and provide businesses with the confidence that they need to invest, is available on ICAEW’s growth campaign.

This chart was originally published by ICAEW.

ICAEW chart of the week: Employment costs

My chart for ICAEW this week looks at how employment costs in June 2025 have risen by 4.8% compared with the same month last year, adding to the expense of doing business in the UK.

ICAEW chart of the week on employment costs.

A step chart showing the changes between the UK monthly payroll in June 2024 and June 2025.

June 2024: £96,975m UK total gross salaries + £8,848m UK total employer national insurance.

Step 1: -£520m from 0.5% fewer employees.
Step 2: +£3,985m from 3.6% increase in salaries.
Step 3: +£1,666m from 17.9% higher employer national insurance.

Net change: +£5,131m.

June 2025: £100,000m UK total gross salaries + £10,954m UK total employer national insurance.

12 Sep 2025. Chart by Martin Wheatcroft FCA. Sources: ONS, 'PAYE real time information, non-seasonally adjusted'; HMRC, 'Monthly tax receipts'.

According to the Office for National Statistics (ONS) and His Majesty’s Revenue and Customs (HMRC), UK employers paid a total of £111bn in gross salaries and employer national insurance in June 2025, an increase of £5.1bn or 4.8% over the same month a year ago.

My chart this week starts with the payroll in June 2024 of £105,823, comprising gross salaries paid by employers of £96,975m and employer national insurance of £8,848m, although it excludes employer pension contributions.

This monthly cost was reduced by £520m from a reduction in the national workforce, which saw the number of payrolled employees drop by 149,937 or 0.5% from 30,532,600 in June 2024 to 30,382,663 in June 2025. This arose from 7,296,859 leavers exceeding 7,146,922 joiners, most of which are people moving jobs. The reduction in the number of payrolled employees at a time of still-rising overall population numbers highlights the difficult economic situation currently facing the UK. The reduction comprised £476m in less pay and £44m in less employer national insurance (calculated at last year’s rates)

Salary increases since last year of approximately 3.6% added £3,985m or 3.8% to the cost of employment, with mean salaries increasing from £3,176 in the month of June 2024 to £3,291 in the month of June 2025. This comprised an increase of £3,501m or 3.6% in gross salaries and an estimated increase in employer national insurance of £484m or 5.5% (based on last year’s rates).

The median monthly salary increased from £2,389 in June 2024 to £2,530 in June 2025, which is a 5.9% increase compared with a year previously. This was less than monthly pay at the 25th percentile, which increased by 7.8% from £1,408 to £1,518, which was partly driven by a 6.7% increase in the minimum wage implemented in April 2025 (16.3% for those aged 18 to 20 and 18% for those aged under 18) that help lift the salaries of lower paid workers.

Pay at the 75th percentile increased by 4.7% (from £3,632 to £3,803) compared with a year previously, while pay at the 95th and 99th percentiles increased by 3.1% (from £7,461 to £7,692) and 2.6% (from £15,181 to £15,583) respectively. These lower rates of increase for higher paid workers primarily relate to base pay and so do not tell the full story as bonuses and other variable compensation for 2025 will in most cases not show up in pay packets until early next year.

A further £1,666m or 1.5% was added to the total cost of employment as a consequence of changes in employer national insurance effective from April 2025. These took the rate payable by employers from 13.8% of salaries over £792 a month to 15.0% of salaries above £417 per month, adding an extra 17.9% to the amount paid in employer national insurance after taking account of changes in the number of payrolled employees and salary increases since last year. Just under half of the increase (£808m) resulted from the change in the main rate of employer national insurance going up from 13.8% to 15.0% on salaries above £792 a month, with the balance (£858m) coming from lowering the threshold at which the 15.0% applies to £417 per month.

The overall effect was a net increase of £5,131m or 4.8% in total pay and employer national insurance to £110,954m in June 2025, comprising a net increase of £3,025m or 3.1% in total gross salaries to £100,000m and a net increase of £2,106m or 23.8% in employer national insurance to £10,954m.

The chart does not reflect the full cost of employment as it does not include employer pension contributions, non-payrolled benefits, and employment-related costs such as facilities, equipment, training and travel amongst others. However, it still gives a useful illustration of how payroll costs have changed significantly over the course of one year.

ICAEW’s growth campaign identifies how it is too difficult, expensive and uncertain to do business in the UK and calls for the government to do what it can to streamline regulations, reduce unnecessary costs, and provide businesses with the confidence they need to invest.

This chart was originally published by ICAEW.

ICAEW chart of the week: Business growth

Our chart this week asks whether the recent low rate of growth in numbers of businesses registered for PAYE and VAT is linked to the increasing difficulty of doing business in the UK.

ICAEW chart of the week on business growth, showing the net change in the number of PAYE and VAT registered businesses by year.

2017: +13,400
2018: +35,300
2019: +44,300
2020: +13,700
2021: +9,400
2022: -48,000
2023: -26,300
2024: +12,100
H1 2025: +10,000

5 Sep 2025. Chart by Martin Wheatcroft FCA. Source: ONS, 'Business demography: Q2 (Apr to Jun) 2025.

According to the Office for National Statistics, there were net additions of approximately 13,400, 35,300 and 44,300 to the UK inter-departmental business register in 2017, 2018 and 2019 respectively. This was followed by net additions of 13,700 and 9,400 in 2020 and 2021 during the pandemic and then net reductions of 48,000 and 26,300 in 2022 and 2023 during the cost-of-living crisis.

The register started growing again in 2024 with net additions of 12,100, followed by a net increase of approximately 10,000 in the first half of 2025. This rate of increase is significantly lower than the average rate of net business formation before the pandemic but is a significant improvement over the net contraction in the number of businesses in 2022 and 2023 during the cost-of-living crisis.

The net changes are equivalent to 0.5%, 1.3%, 1.6%, 0.5%, 0.3%, -1.7%, -1.0% and 0.4% in the total number of registered businesses in 2017 to 2024 respectively and annualised growth of 0.7% in the first half of 2025.

The total number of PAYE and VAT registered businesses is projected to have reached around 2.75m in June 2025, based on the last published count for March 2024 plus reported movements since then. This is out of an overall total of somewhere in the region of 5.5m businesses in the UK, with the difference mainly due to single-person companies and sole traders that do not employ any staff and operate below the VAT threshold of £90,000 per year.

The approximately 2.75m registered businesses can be analysed into just under 2.1m companies and other types of corporations, approximately 400,000 sole proprietors, 150,000 or so partnerships, and around 100,000 non-profit bodies, mutual associations and public sector organisations. Approximately 945,000 registered businesses are in London and the South East, 675,000 are in the Midlands and the East of England, 535,000 in the North of England, 340,000 in the South West of England and Wales, 175,000 in Scotland, and 80,000 in Northern Ireland.

Business births between 2017 and 2024 were approximately: 338,700; 341,100; 355,700; 322,000; 354,300; 327,500; 307,100; and 310,100; there were 167,600 in the first half of 2025. Business deaths in 2017 to 2024 were: 325,300; 304,800; 311,400; 308,300; 344,900; 375,500; 333,400; and 298,000; with 157,600 in the first half of 2025.

The overall change in the total number of registered businesses between 2017 and the first half of 2025 was 63,900, an average of 7,500 or 0.3% a year over eight and a half years, comprising an annual average of 332,100 business births less 324,600 business deaths in that time.

The chart highlights both the very difficult economic times we have been through in the past few years with the pandemic and cost-of-living crisis and the current period of weak economic growth that has yet to return to pre-pandemic levels.

One of the key ways that we can increase the rate of net business formation is to make it easier to do business in the UK, as discussed in ICAEW’s growth campaign. This asks why it is too difficult, too expensive and too uncertain to do business in the UK today and suggests ways the government can streamline regulation, reduce costs and unnecessary frictions, and provide businesses with greater confidence to invest and grow.

This chart was originally published by ICAEW.

ICAEW chart of the week: One Big Beautiful Bill Act 2025

My chart for ICAEW this week looks at the impact on the US federal government deficit of the major tax and spending changes passed by Congress and signed into law by President Trump on 4 July 2025.

ICAEW chart of the week: A step chart showing the projected effect of the One Big Beautiful Bill Act 2025 on the average annual US federal government deficit between FY2025 and FY2034.

Left hand column: Baseline projection $2,109bn.

Steps 1 to 3 (shaded): Spending cuts -$110bn plus Tax cuts +$449bn plus Extra interest +$68bn.

Step 4: Net change +$407bn (total of steps 1 to 3).

Right hand column: Revised projection $2,516bn.

25 Jul 2025. Chart by Martin Wheatcroft FCA. Design by Sunday.
Sources: Congressional Budget Office; ICAEW calculations.

My chart this week looks at the impact on the US federal government deficit of the major tax and spending changes passed by Congress and signed into law by President Trump on 4 July 2025.

The Congressional Budget Office (CBO) published on 21 July 2025 its assessment of Public Law 119-21 (the 21st law passed by Congress in its 119th session), also known as the One Big Beautiful Bill Act 2025 (OBBBA).

OBBBA was passed by Congress and signed into law by President Trump on 4 July 2025 and contains sweeping changes to the US federal tax system as well as a significant shift in spending priorities.

The chart this week attempts to illustrate the impact of OBBBA on the federal deficit by looking at how it changes the average annual projected deficit over the next 10 years from FY2025 (the current fiscal year ending on 30 September 2025) to FY2034, compared with the CBO’s baseline projection.

The baseline projection, published by the CBO in January 2025, was for the federal government deficit to increase from $1,865bn in FY2025 to $2,597bn in FY2034, an average deficit over the 10 years of $2,109bn or 5.8% of GDP.

According to the CBO, OBBBA is expected to increase the federal deficit each year by $339bn on average over the period to FY2034, with a net cut in federal spending of $110bn on average offsetting a net cut in revenues of $449bn. The CBO’s assessment does not take account of the additional cost of financing these higher deficits, which ICAEW calculates would add a further $68bn a year on average to the interest bill.

The consequence is a net increase in the annual federal deficit of $407bn on average over 10 years, taking it to an average of $2,516bn or 7.0% of GDP.

Net spending cuts of $110bn comprise spending increases of $66bn a year on average, net of spending reductions of $164bn a year and incremental ancillary income that is deducted from spending of $12bn. Extra spending includes an extension of child tax benefits ($19bn a year on average) and more money for homeland security and immigration enforcement ($18bn), the military and coastguard ($17bn), farm subsidies ($5bn), air traffic control ($1bn), the mission to Mars ($1bn) and other items ($5bn).

Spending reductions include cuts in Medicaid and Medicare programmes ($106bn on average each year), education and student loan relief ($30bn), other welfare and health programmes ($19bn), clean energy subsidies ($8bn) and other cuts ($1bn), while ancillary income comprises $9bn on average from spectrum auctions, $2bn from oil and gas leases, and $1bn extra from higher visa fees.

Net tax cuts comprise $511bn a year in tax cuts less $62bn a year in tax increases.

Tax cuts include making previous temporary tax cuts permanent ($379bn), business tax reforms ($97bn), personal tax reforms ($26bn), energy related tax credits ($4bn), Medicaid and Medicare related tax deductions ($3bn), and other ($2bn). Tax increases include the termination of tax reliefs for clean energy ($47bn a year), addressing tax loopholes ($6bn), additional immigration fees included in revenue ($4bn), taxing low-value international shipments ($4bn) and other ($1bn).

The CBO doesn’t directly conclude what this will mean for the US national debt (debt held by the public), which was expected in January’s baseline projection to increase from $28.2tn or 98% of GDP at the start of the current financial year to $49.5tn or 117% of GDP on 30 September 2034. Adding $4.1tn over 10 years to that amount suggests this would increase to $53.6bn or 127% of GDP.

These numbers don’t take account of the anticipated economic boost of lower taxes that should partially offset some of the tax impacts set out in the CBO’s analysis, as well as increasing the denominator in the deficit to GDP ratio. However, they also don’t take account of other factors such as US trade policy – including the additional tax receipts from tariffs and the potential effect that those higher taxes will have on the US economy – or many other policies of the US administration. We will need to wait for the CBO’s next full economic and fiscal projections later in the year to understand more about what that might mean.

Either way, the OBBBA will go down as one of the most consequential legislative acts of the US Congress in recent years.

This chart was originally published by ICAEW.

ICAEW chart of the week: climate change and the public finances

My chart for ICAEW this week looks at how climate change is now expected to make the OBR’s dire predictions for the public finances even worse.

A line chart on climate change and the public finances, with three curved lines for public sector net as a share of GDP over fifty years. with labels from March 2034 onwards.

Bottom line: Baseline public sector net debt/GDP. Falls from just under 100% of GDP to 90% of GDP in March 2034 and then rises to 100%, 130%, 188% and 274% of GDP in March 2044, 2054, 2064 and 2074 respectively.

Middle line: Baseline + climate change (below 3°C scenario). Rises from 94% of GDP in March 2034 (label not shown) to 114%, 157%, 235% and 348% of GDP in March 2044, 2054, 2064 and 2074 respectively.

Top line: Baseline + climate change + economic shocks. Rises from 104% in March 2034 to 134%, 187%, 275% and then 398% in March 2074.

18 Jul 2025. Chart by Martin Wheatcroft FCA. Design by Sunday. Sources: OBR, 'Fiscal risks and sustainability', Sep 2024 and Jul 2025 reports.

ICAEW’s chart of the week is on climate change this week, illustrating how it could add a further 74 percentage points to the Office for Budget Responsibility (OBR)’s already disheartening baseline projection for public sector net debt of 274% of GDP to reach 348% of GDP, or potentially 398% if economic shocks are included.

The baseline projection, published by the OBR in September 2024, showed public sector net debt as a proportion of the size of the economy falling from just under 100% of GDP to 90% of GDP in March 2034 and then rising to 100%, 130%, 188% and 274% of GDP in March 2044, 2054, 2064 and 2074 respectively.

One of the main drivers of the baseline projection is the expected rise in spending on pensions, health and social care as more people live longer, sometimes less healthy lives, combined with a falling fertility rate that means there will be proportionately fewer working age adults to pay the taxes needed to fund that rise.

Incorporating the OBR’s new central projection for climate change, public sector net debt would be 94% of GDP in March 2034 (not shown in the chart because of a lack of space between lines) and then 114%, 157%, 235% and 348% of GDP in March 2044, 2054, 2064 and 2074 respectively. Adding potential economic shocks on top would increase the projection for public sector net debt/GDP to 104% in March 2034 rising to 134%, 187%, 275% and then 398% in March 2074.

The September 2024 baseline projection included the loss of fuel duty receipts from the phasing out of petrol and diesel vehicles between now and 2050, but the OBR in its recent July 2025 fiscal and sustainability report has looked in more detail at both the incremental costs of transitioning to net zero and the damage that is likely to result from a much warmer and wetter climate in several different scenarios.

OBR’s central ‘below 3°C’ scenario is based on global average temperatures rising by 2.9°C above pre-industrial levels by 2100, of which weather and other damage associated with a much warmer and wetter climate is projected to add 17 percentage points to accumulated debt over the next half century from direct and indirect costs and revenue losses. Climate damage is also expected to result in slower economic growth that would add 27 percentage points over 50 years by reducing the denominator in the debt to GDP ratio. The government’s share of transition costs (including lower tax receipts from higher private sector spending) is projected to add 7 percentage points, while there is a 22 percentage point impact from the incremental debt interest that would be incurred on a higher level of debt.

This is before taking account of recessions and other potential economic shocks, which based on historical patterns are expected to add 10% of GDP to public sector net debt every decade or so.

The chart does not reflect other risks identified by the OBR in its latest report, where it reports that the exposures to the public finances have increased since its assessment last year. One risk they did look at in some detail is the prospect of higher interest rates on government borrowing on the basis that demand for gilts reduces as the Bank of England winds down its holdings of gilts (quantitative tightening) and defined benefit pension schemes gradually sell their holdings of gilts to fund pension payments. This risk might be mitigated by selling shorter-dated gilts, although shorter maturities would make the public finances less resilient by increasing the amount of debt needing to be refinanced each year.

The OBR’s dismal assessment of the prospects for the public finances highlights just how difficult a financial position the UK finds itself in, with a lot to do (and some luck needed) if it is to be restored to a sustainable path. At the same time, the costs of climate change are now becoming that much more apparent as extreme weather events and other climate-related costs start to show up in public finance and insurance data.

For more information about the role of the accountancy profession in climate change, visit ICAEW’s climate hub.

This chart was originally published by ICAEW.

ICAEW chart of the week: Balance of payments

Our chart this week takes a look at the UK’s balance of payments in the year to 31 March 2025 and wonders what the future has in store.

A step chart on the balance of payments in 2024/25 showing payments and receipts on either side, with three shaded sub-steps in-between adding up to the current account deficit, being the difference between total payments and receipts.

Payments £1,401bn = £924bn for imports + £430bn earnings + £47bn transfers.

Receipts £1,318bn = £880bn from exports + £407bn earnings + £31bn transfers.

Step 1: Trade deficit (imports and exports) -£44bn.
Step 2: Primary income deficit (earnings) -£23bn.
Step 3: Secondary income deficit (transfers) -£16bn.

Step 4: Current account deficit (sum of steps 1 to 3) -£83bn.

11 Jul 2025. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: ONS, 'Balance of payments, UK: Jan-Mar 2025', seasonally adjusted, four quarters to Mar 2025.

The UK is a trading nation as demonstrated by its balance of payments, the topic of our chart this week.

According to the Office for National Statistics (ONS), the UK made external payments of £1,401bn in 2024/25, comprising £924bn in exchange for imported goods and services, £430bn in investment and other earnings paid to foreign investors and workers, and £47bn in remittances, international development aid and other transfers.

On the other side of the ledger, the UK received £1,318bn from external sources in 2024/25 comprising £880bn in exchange for exported goods and services, £407bn from foreign investment and other earnings, and £31bn in remittances and other transfers.

As our chart illustrates, this resulted in a current account deficit of £83bn in 2024/25, comprising a trade deficit of £44bn, a primary income deficit on earnings of £23bn, and a secondary income deficit on transfers of £16bn.

The trade deficit of £44bn can be analysed between a deficit on goods of £239bn (being payments for goods imports of £602bn net of receipts from goods exports of £363bn) and a surplus on services of £195bn (with payments for services imports of £322bn being exceeded by receipts from services exports of £517bn).

The primary income deficit of £23bn principally relates to the £22bn difference between £427bn in investment income and profits generated in the UK paid to foreign owners in 2024/25 and the £407bn received by UK investors from their investments overseas, plus £1bn from the net of £3bn paid in compensation to foreign workers less £2bn earnt by UK workers from foreign sources.

The secondary income deficit of £16bn comprises a net £10bn in government-related transfers, being £11bn in payments made by the UK government (primarily for international development and humanitarian aid) less £1bn received from the EU and others, and a net £6bn from the differences between remittances and other transfers sent abroad of £36bn less remittances and other transfers received into the UK of £30bn.

The chart does not show the other side of the balance of payments, which is a £77bn non-seasonally adjusted surplus on the investment account less a £4bn deficit on the seasonally adjusted capital account, a net cash inflow of approximately £73bn.

The £77bn surplus on the investment account reflected net investment into the UK of £370bn over the course of the four quarters to March 2025, less £293bn net investment abroad. The £4bn deficit on the capital account primarily relates to international development capital grants, with £1bn from the disposal of non-financial assets to foreign owners offset by £1bn in UK purchases of foreign non-financial assets.

While some of the difference of £10bn between the current account deficit of £83bn and the net surplus on the investment and capital accounts of £73bn is because of timing differences from seasonal adjustments, most of it arises because the ONS is not able to gather data on all international payments and receipts. In theory the balance of payments should balance exactly.

The current account deficit of £83bn in 2024/25 was equivalent to 2.9% of the UK’s GDP of £2,891bn for the same period, being the net of total payments and total receipts of 48.5% and 46.6% of GDP respectively.

Being the difference between two very big numbers, the current account deficit is the net effect of billions of transactions every year as goods and services are bought and sold internationally, earnings are paid and received, and money is transferred at exchange rates that change on a minute-by-minute basis. Despite this the current account deficit in 2024/25 was only 0.1 percentage points higher than the average 2.8% of GDP since 1997, even if it has gone as high as 6.9% in an individual quarter.

While the global trade war was initiated by the US is likely to have a major impact on how money flows around the world, it is much harder to guess how significant that effect will be, either on the overall global economy or on any individual country, in particular the UK.

Either way, the balance of payments is likely to become a more prominent statistic in the coming months and years.

This chart was originally published by ICAEW.