No public sector finance surplus in January as pandemic spending rises

22 February 2021: The UK reported an £8.8bn fiscal deficit in January, bringing the total shortfall over ten months to £270.6bn. Public sector net debt is up by £316.4bn and now exceeds £2.11tn.

The latest public sector finance figures for January 2021, published on Friday 19 February 2021 by the Office for National Statistics (ONS), reported a deficit of £8.8bn in January 2021, a contrast from the surplus typically reported in most years as expenditures outpaced the extra taxes that come with self-assessment filings. This brought the cumulative deficit for the first ten months of the financial year to £270.6bn, £222bn more than the £48.6bn reported for the same period last year.

Falls in VAT, corporation tax and income tax receipts and the waiver of business rates continued to drive lower tax revenues, while large-scale fiscal interventions resulted in much higher levels of expenditure. Net investment is greater than last year (mostly as planned), while the interest line has benefited from ultra-low interest rates.

Public sector net debt increased to £2,114.6bn or 97.9% of GDP, an increase of £316.4bn from the start of the financial year and £328.6bn higher than in January 2020. This reflects £45.8bn of additional borrowing over and above the deficit, much of which has been used to fund coronavirus loans to business and tax deferral measures.

Cash funding (the ‘public sector net cash requirement’) for the month was a net cash inflow of £22.3bn, reflecting self-assessment and corporation tax receipts in the month. This reduced the cumulative total cash outflow this financial year to £311.1bn, still a significant change from the cumulative net cash inflow of £16.0bn reported for the same ten-month period in 2019-20.

The combination of receipts down 6%, expenditure up 28% and net investment up 31% has resulted in a deficit for the ten months to January 2021 that is almost six times as much as the budgeted deficit of £55bn for the whole of the 2020-21 financial year set in the Spring Budget in March, despite interest charges being lower by 28%.

The numbers reported by the ONS exclude £29.5bn in estimated bad debts from coronavirus lending that is expected to be reflected in the deficit for the full year, which is on track to end up somewhere between £350bn and the £393.5bn as forecast by the Office for Budget Responsibility in November.

Commenting on the numbers, Alison Ring OBE FCA, public sector director at ICAEW, said: “Although a little lower than some had expected, the sheer scale of the public borrowing undertaken in the first ten months of this financial year remains unprecedented in peacetime. 

The upcoming Budget will provide an opportunity for the Chancellor to outline a vision for how to repair the public balance sheet and put the public finances onto a sustainable path over the coming decade, even if 2021 is not the time for major tax changes.

We want to see the Budget focus on building a bridge to economic recovery, getting people back into work, help for exporters, and greater investment in digital technology to make our businesses competitive in the 21st-century economy.”

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 first nine months from £270.8bn to £261.8bn and increasing the reported deficit for 2019-20 from £57.0bn to £57.1bn.

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

This article was originally published by ICAEW.

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