ICAEW chart of the week: Q4 retail sales

Chart: 2018 Q4 retail sales £121.3bn + inflation (1.4%) £1.7bn + sales growth (0.9%) £1.1bn = £124.1bn 2019 Q4 retail sales.

Concerned about the state of the UK economy? Then the latest retail sales numbers will not have helped, with fourth quarter sales in the UK mainland just 0.9% higher after inflation over a year earlier, as illustrated by the #icaewchartoftheweek.

With population growth still estimated to be running at around 0.6% a year, this implies that retail sales per capita in Q4 (at around £635 per month) were just 0.3% higher after inflation than the same period in 2018.

Sales in Q4 of £124.1bn comprised £41.3bn on food, drink and tobacco, £21.3bn on clothing and footwear, £19.6bn on household goods, £11.5bn on automotive fuel and £30.4bn on other non-food purchases. On a per capita basis, this is equivalent to approximately £210 per person per month on food, drink and tobacco, £110 on clothing and footwear, £100 on household goods, £60 on automotive fuel and £155 on other non-food purchases.

This low level of growth on a year earlier reflects a slow-down in retail activity in the fourth quarter of 2019, with the Office for National Statistics reporting that Q4 sales were 0.9% lower than the third quarter on a seasonally-adjusted basis.

This will feed into fourth quarter GDP, which will not be good news for the Chancellor as he puts together what is being rumoured to be a radical first Budget in March – a weak economy will reduce his room for manoeuvre to reform the tax system while boosting public spending at the same time.

ICAEW chart of the week: Regional capex

Chart: Difference from average identifiable public sector Capex per per year of £967. See table at end of post.

The #icaewchartoftheweek this week is on the subject of public sector capital expenditure across the UK in the light of speculation that the Spring Budget in March will feature a significant boost to capital spending in the North of England.

We thought it might be interesting to look at the most recent data; albeit the usual caveats apply to the numbers given the lack of formal systems in government to fully track expenditure by region and the differences between capital expenditure in the fiscal numbers (shown in the chart) and the capital expenditure reported in the (as yet unpublished) Whole of Government Accounts for 2018-19.

According to the ONS, there was £64.2bn in capital expenditure that can be identified by nation and region of the UK, an average of £967 for the 66.4m people living in the UK in 2018-19.

It is perhaps not surprising that there is more capital spending in London than the per capita average given that the millions of commuters and visitors that add to the 8.9m local population every day. However, the scale of the difference is substantial with £13bn invested in 2018-19, an average of £1,456 per person – £489 more than the UK average.

Of course, variations in capital expenditure are to be expected across a country of the size of the UK given the different natures and needs of each region and nation. For example, Scotland’s much higher level of per capita public capital expenditure (£7.2bn / 5.4m people = £1,325 per person) needs to be seen in the context that it comprises a third of the land area of the entire UK, but only has 8% of the population.

The region that incurs the least capital expenditure on a per capita basis is the East Midlands, where £3.0bn was spent in 2018-19, an average of £621 per person (£346 less than the average) for each of the 4.8m people living there. This is followed by Yorkshire and The Humber (£694 per person), the South West (£723) and the West Midlands (£799).

Most of the other regions are close to the average, including (perhaps surprisingly given some of the headlines), the North East and the North West.

One question that does come to mind – if Government’s intention is to rebalance regional inequalities by investing more in the ‘Northern Powerhouse’ and the ‘Midlands Engine’, will it have anything to spare for the ‘Great South West’ too?

2018-19
Capex
Population		Per
capita		Difference
from average
North East£2.4bn2.7m£906-£61
North West£7.0bn7.3m£955-£12
Yorkshire and The Humber£3.8bn5.5m£694-£273
East Midlands£3.0bn4.8m£621-£346
West Midlands£4.7bn5.9m£799-£168
East of England£5.7bn6.2m£924-£43
London£13.0bn8.9m£1,456+£489
South East£8.6bn9.1m£945-£22
South West£4.0bn5.6m£723-£244
Wales£3.0bn3.1m£956-£11
Scotland£7.2bn5.4m£1,325+£358
Northern Ireland£1.8bn1.9m£949-£18
United Kingdom£64.2bn66.4m£967–

Source: ONS, Country and regional public sector finances 2018-19: identifiable capital expenditure.

ICAEW chart of the week: A Single Market of 529m people

A chart comprising a colour-coded grid of 529 squares each representing 1m people in the Single Market.

2020 is likely to be an interesting year for many reasons, but in Europe all eyes will be on UK and EU negotiators as they attempt to agree a new trading relationship following the ending of the UK’s membership of the European Union at the end of this month.

As illustrated by the #icaewchartoftheweek, the UK is currently the third largest of the 32 members of the ‘European Single Market’, a trade bloc that comprises the 28 European Union member states and the four European Free Trade Association (EFTA) members.

The UK appears be aiming for a more distant trading relationship than that it currently enjoys as a EU member or that enjoyed by the 4 EFTA nations (three of which are members of the European Economic Area and the fourth – Switzerland – which has a series of bilateral agreements to give it access to the Single Market). Despite that, there are still a wide range of potential outcomes ranging from no agreement through to a much closer set of trading arrangements across multiple industries.

From a trade perspective, nothing much will change on 31 January when the UK formally ends it membership of the EU as the UK will continue to participate fully in the Single Market (as well as the EU Customs Union) until the end of the year. It will only be on 1 January 2021 that any new trade arrangements will come into force, changing the way that people and businesses operate across borders.

For now, it is very difficult to predict what exiting the Single Market will mean for the 67m people in the UK or the 462m people remaining in the Single Market. However, one prediction that can be made is that there will be plenty of opportunities for wild – and no doubt contradictory – headlines as the negotiators set to work!

Germany83.2mBulgaria6.9m
France67.2mDenmark5.8m
UK67.1mFinland5.5m
Italy60.2mSlovakia5.5m
Spain47.1mNorway5.4m
Poland38.0mIreland4.9m
Romania19.3mCroatia4.1m
Netherlands17.3mLithuania2.8m
Belgium11.5mSlovenia2.1m
Czechia10.7mLatvia1.9m
Greece10.7mEstonia1.3m
Sweden10.4mCyprus0.9m
Portugal10.3mLuxembourg0.6m
Hungary9.7mMalta0.5m
Austria8.9mIceland0.4m
Switzerland8.6mLiechtenstein0.04m

ICAEW chart of the week: Post-GE2019 fiscal deficits

With the General Election now complete, the Office for Budget Responsibility (OBR) was able to release a restated version of its March 2019 fiscal forecasts this morning, reflecting technical revisions to the way the fiscal numbers are calculated, in particular that of student loans. This enables us to update the numbers set out our GE2019 Fiscal Insight on the party manifestos as best we can, given that the OBR has not deigned to include either the changes to public spending announced in the Spending Round 2019 nor the tax and spending changes in the Conservatives manifesto.

As illustrated by the #icaewchartoftheweek, the revised baseline forecast for the fiscal deficit is now £50bn for the current fiscal year, followed by £59bn next year in 2020-21, £58bn in 2021-22 and 2022-23 and £60bn in 2023-24.

It was frustrating that the OBR scheduled their publication of these revised numbers for the first day of the General Election purdah period making it vulnerable – as happened – to being pulled. A day earlier and that would not have happened! Ideally, these revisions would have been published as soon as practical after the publication by the ONS of their revisions to historical numbers in September.

It would have been even better if the OBR had been able to update their economic forecast too, given that the current baseline is still based on an economic and fiscal analysis from nine-months ago. With weak economic growth over the first half of the financial year, it is likely that the OBR will cut its forecasts for tax revenues over the forecast period when it does get round to updating them, resulting in higher deficits – even before taking account of suggestions that the Conservative GE2019 winners plan to announce a splurge of more capital expenditures in the Spring Budget in February.

Unfortunately, we won’t see an updated long-term forecast until at least July 2020, when the OBR is scheduled to publish its next fiscal sustainability report on the prospects for the public finances.

ICAEW chart of the week: General Election 2019

With voters in the UK going to the polls tomorrow, the #icaewchartoftheweek is on the political party’s plans for the public finances.

All the political parties are promising to increase taxes, public spending and investment, with the plan to eliminate the fiscal deficit now well and truly abandoned. 

The Conservatives are promising the least in terms of additional spending and investment, with £3bn a year extra spending in 2023-24, £8bn in extra capital investment and tax rises broadly offsetting tax cuts. However, this is unlikely to be the final result as they have deferred significant financial decisions, such as the funding of adult social care, until after the election. 

Labour is planning to spending much more with £83bn a year more spending by 2023-24, funded by £78bn tax increases and £5bn from higher economic growth. They plan capital investment of £55bn a year and £58bn in total over five years to compensate ‘WASPI’ women. This is pretty ambitious, leading the IFS and others to cast doubt on the achievability of their plans, while these numbers don’t include the additional borrowing from their plans to nationalise utilities, nor the borrowing of those businesses post-nationalisation.

The Lib Dem plans are also very ambitious, with £50bn extra a year public spending by 2024-25 funded by £37bn in higher taxes and £14bn in higher economic growth from cancelling Brexit. They plan to borrow an extra £25bn a year to fund new capital investment.

The Greens’ are planning to be even more ambitious, including completely reforming welfare provision with the introduction of a universal basic income, contributing to a £124bn increase in taxes and public spending (albeit some of this is a switch from tax deductions to cash payments). Their capital investment plans are the largest and likely to most difficult to deliver of all the major parties at £82bn a year on average over 10 years.

Unfortunately, none of the major political parties appear to have a fiscal strategy that extends beyond the next five years, with only limited measures to address the big financial challenges of more people living longer. This is disappointing given that relatively small actions taken now could make a big difference to the financial position of the nation in 25 years’ time.

ICAEW’s full analysis of the party manifestos can be found at icaew.com/ge2019manifestoanalysis.


You can be part of the conversation as part of ICAEW’s GE 2019: It’s More Than a Vote campaign.

ICAEW Fiscal Insight: General Election 2019

On 12 December 2019, voters have the opportunity to focus on the big challenges of sustainability, technology and the public finances as they elect a government for the next four and a half years. 

ICAEW have published a Fiscal Insight on the General Election 2019 manifesto proposals of the Conservatives, the Labour Party, the Liberal Democrats and the Green Party.

All the political parties are promising to increase taxes, public spending and investment. The Conservatives are promising the least, but they have deferred significant decisions. Other parties propose spending a lot more, with Labour planning to nationalise utilities. There are new fiscal rules, but questions about whether they would be adhered to.

This is in the context of public finances that are on a financially unsustainable path and – disappointingly – none of the parties set out a long-term fiscal strategy. There are significant risks around the achievability of all the party manifesto plans, with the projected deficit in 2023–24 of £62bn (Conservatives), £118bn (Labour), £76bn (Liberal Democrats) or £133bn (Greens).

Read the Fiscal Insight on the ICAEW website.

ICAEW chart of the week: Age profile of monthly public spending

Chart: £902 at age 0, £1,505 at 10, £889, £618, £639, £742, £761 at age 60, £1,761 at 70, £2,246, £3,296, £3,515 at age 100.

With the General Election in full swing, the #icaewchartoftheweek is on one of the principal drivers of public spending: age.

As data from the Office for Budget Responsibility illustrates, public spending on the young increases as the population is educated, but then falls back to a low of around £600 per month at around age 28, after which spending per person starts to increase gradually over working lives until retirement age. From that point on, not only is there a significant increase in welfare spending as the state pension kicks in, but the costs of health care, and then adult social care start to increase dramatically.

With the number of people in the UK aged 70 or more expected to increase by 58% over the next 25 years, total public spending will increase accordingly, especially with all political parties promising to protect and improve the state pension, health provision and adult social care.

The number of people under the age of 70 projected by the ONS to increase by only around 2% over that same period, or potentially even fall by around 7% if net inward migration is lower than expected, while further cuts in public services are apparently off the table with the ‘end of austerity’. The implication is that taxes will need to rise, that social provision in retirement will need to be cut, or for there to be a resumption in austerity policies  (or a combination of all three).

Unfortunately, none of the major political parties appear to have a fiscal strategy that extends beyond the next five years, with only limited measures to address the big financial challenges of more people living longer. This is disappointing given that relatively small actions taken now could make a big difference to the financial position of the nation in 25 years’ time.

This election, voters have the opportunity to focus on the big challenges of sustainability, technology and the public finances. To find out more, visit GE2019 – It’s More Than a Vote.

ICAEW chart of the week: Public sector capital expenditure

Chart: Capex (real-terms) £61.5bn (3.5% of GDP) in 2009-10, to £64.1bn in 2011-12, down to £49.2bn (2.6%) in 2013-14, up to £60.0bn (2.9%) in 2017-18.

With apologies for the delay because of being away, this week’s #ICAEWchartoftheweek is on public sector capital expenditure (capex), something that all the political parties in the #GE2019 have promised to increase – in some cases by very significant amounts! 

As part of ICAEW’s It’s More Than A Vote campaign, ICAEW will be analysing the political party manifestos over the next few weeks, including the potential implications for the public finances.

One area that all the major parties appear to agree on is the need to increase investment in infrastructure and other assets, which is why we thought we would look at the last nine years of capital expenditure reported in the Whole of Government Accounts (WGA), prepared under International Financial Reporting Standards. This differs from public sector investment in the National Accounts, with the latter including capital grants and other transactions that do not result in the creation of publicly-owned fixed assets.

As the chart illustrates, capital expenditure in 2017-18 of £60.0bn was lower than the £64.1bn incurred in 2011-12 after adjusting for inflation and to include Network Rail, the government owned railway infrastructure company prior to 2014-15 when it was incorporated into the WGA). As a proportion of the economy, capex in 2017-18 was 2.9% of GDP, a smaller ratio than the 3.5% calculated for 2011-12.

Only around £16bn (0.8% of GDP) of the amount spent in 2017-18 went into infrastructure assets (principally transport infrastructure such as roads and railways), with in the order of £24bn (1.2%) going into land & buildings, including hospitals and schools. Approximately £9bn (0.4%) was spent on military equipment, with the balance of £11bn (0.5%) invested in other public sector assets, ranging from tangible fixed assets such as plant & equipment, IT hardware, vehicles and furniture & fittings, as well as intangible fixed assets such as software.

Capex comprises a relatively small proportion of total expenditures (capital and non-capital) of £1.0tn reported in the WGA for 2017-18. As a consequence, even relatively small incremental amounts will constitute proportionately large increases in capital budgets in the next few years.

Whether these plans will be deliverable is another question, given that traditionally the government has struggled to spend all its capital budgets, not to mention the difficulties there will be in finding all the workers necessary for a major expansion in construction activity.

It’s More Than A Vote

ICAEW chart of the week: monthly GDP estimates to September 2019

Chart: Monthly GDP estimates. Sep 2018 +0.02%, +0.25%, +0.20%, -0.29%, +0.48%, +0.28%, +0.04%, -0.49%, +0.21%, +0.11%, +0.31%, -0.16%, Sep 2019 -0.07%.

The ONS announced today that the real-terms change in quarterly GDP for Q3 (July to September 2019) was +0.3%, a turnaround from the contraction of -0.2% seen in Q2.

The #icaewchartoftheweek looks instead at the seasonally adjusted monthly changes in GDP over the last year. This is a view that the ONS tends not to highlight because it highlights one of the issues with GDP, which is the inherent difficultly in estimating it accurately. It prefers to remove the rockiness in the monthly numbers by averaging the results over longer periods, such as its headline three-month rolling estimates reported in the media today; a number that is still subject to revision, but to a lesser extent than that for individual months.

The monthly contraction of -0.07% in September may therefore not make the headlines, but it is the principal reason why expectations of 0.4% for quarterly growth were 0.1% too high. Most economists expected the economy to be flat this month, rather than the small contraction in the statistics released this morning.

Revisions may have a significant impact on the October monthly GDP estimates scheduled to be released two days before the general election on 10 December 2019. A flat October with no revisions would see the three-month rolling GDP number fall to 0.0%, while a further contraction could see quarterly growth turn negative, a potentially significant contributor to the public debate in the couple of days before the polling booths open.

Perhaps the main conclusion that can be drawn is not about the specific monthly changes themselves, but rather how the economy is so weak that a very small change either in actual economic activity, or in statistical data collection, can easily move the numbers from positive to negative or vice-versa.

A rather dismal perspective to hold onto as the debate rages and claim and counterclaim are made.