Tag: #chartoftheweek

ICAEW chart of the week: China population

Our chart this week follows the news that China’s population has peaked at just over 1.4bn, illustrating the dramatic change that has taken place over the last 40 years.

Step chart showing the change between China's population in 1981 and 2021. 997m in 1981, comprising 765m age 0-39, 228m age 40-79 and 4m age 80+. +776m births - 332m deaths - 15m net migration = 1,426m in 2021 comprising 735m age 0-39, 658m age 40-79 and 33m age 80+.

The news that China’s population has peaked and is starting to fall prompted us to take a look at how the country with the largest population in the world has changed over the last 40 years.

In 1981, two years after the introduction of the one-child policy, China was a young country, with a population of 997m and a median age of 21. Today it is a mature country, with a population of 1,426m and a median age of 38, approaching that of many western countries.

Our chart shows how that population has changed according to the United Nations Population Division. In July 1981, China was estimated to amount to 997m, comprising 765m under the age 40, 228m between the ages of 40 and 79, and 4m aged 80 or over. Since then, there have been 776m births, 332m deaths and net outward migration of 15m to reach a total of 1,426m in July 2021. This comprised 735m people aged between 0 and 39, 658m between 40 and 79 and 33m aged 80 or over.

The dramatic change in the age profile reflects the huge success that China has had in tackling poverty and disease, enabling many more children to survive into adulthood compared with previous generations, and to then live longer lives. Infant mortality fell from 45 per thousand births in 1981 to less than six per thousand in 2021 and life expectancy at birth increased from 65 to 78.

The rapid growth in the population over the last 40 years has slowed in recent years as the number of births has fallen and (as the population has aged) deaths have increased. There were 10.9m births in 2021 (down from 12.2m in 2020, much less than the 22.8m births in 1981) and 10.6m deaths (up from 10.3m in 2020 and much higher than the 7.4m deaths recorded in 1981). With net outward migration of 0.2m, the net increase in the population in 2021 was less than 0.1m, down from the net increase of 1.9m in 2021 and much lower than the 17.1m increase experienced in 1982 and the peak increase of 19.9m in 1990.

According to the UN’s numbers, China’s population was expected to peak this year (in 2023), with a central projection that would see the population falling by 233m the next 40 years to 1,193m in 2061, and then to 767m in 2100.

However, China’s population is now believed to have peaked already, with the National Bureau of Statistics of China announcing on 17 January 2023 that China’s population excluding foreign citizens and excluding Hong Kong, Macau and Taiwan fell by 0.85m from 1,412.6m in December 2021 to 1,411.75m at the end of 2022.

India, with an estimated population of 1,407m in July 2021 according to the UN, was expected to overtake China as the world’s largest population during 2023, but there is some speculation following China’s announcement that this has already occurred. India’s population is currently projected to continue to grow over the next 40 years and peak at 1,697m in 2064.

With the population peaking and many more people living longer lives, the fiscal challenge facing China becomes similar to those facing western nations: how to support a rapidly increasing number of pensioners at the same time as the working age population is declining.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK public finances 2022/23

Our chart this week compares the UK public finances for the current fiscal year with the overall size of the economy, illustrating how taxes are expected to amount to 36% of GDP and expenditure 47% of GDP.

Graphic using circles to illustrate the latest official forecast for UK public finances for 2022/23: 1. A circle for taxes of £910bn (36% of GDP), inside a circle of taxes and other income of £1,005bn (40% of GDP) which in turn is inside a circle of GDP of £2,497bn. 2. A circle for expenditure of £1,182bn (47% of GDP), inside a circle of GDP of £2,497bn. 3. An adjacent circle for the deficit of £177bn (7% of GDP).

The latest official forecast from the Office for Budget Responsibility (OBR) for the current fiscal year ending 31 March 2023 is for a shortfall (or ‘deficit’) of £177bn between receipts of £1,005bn and expenditure of £1,182bn. The largest component of receipts is taxation, which is forecast to amount to £910bn.

Our chart puts these numbers into context by comparing them with the forecast for Gross Domestic Product (GDP) of £2,497bn in 2022/23, highlighting how taxes are expected to amount to 36% of GDP, receipts including other income to 40% of GDP, and expenditure to 47% of GDP, resulting in a deficit amounting to 7% of GDP.

As many commentators have noted, taxes are at a historically high level, with taxation at its highest level as a share of economic activity since 1949. This is unsurprising given the combination of many more people living longer lives and the financial commitments made by successive governments to pay for pensions, health and (to an extent) social care.

Expenditure is also at historically high levels, with energy support packages adding to recurring expenditure of around 43% or 44% of GDP. This is below the peak of 53% of GDP a couple of years ago at the height of the pandemic.

As a consequence, the shortfall between receipts and expenditure of 7% of GDP is elevated compared with the 2% to 3% of GDP ‘normal’ range, although still below the 15% of GDP seen in 2020/21 during the pandemic and 10% of GDP in 2009/10 during the financial crisis.

The increase in the corporation tax rate to 25% from April means that receipts are expected to increase to 37% of GDP over the next few years, leading to the total of taxes and other receipts rising to 41%. At the same time total expenditure is expected to stay at 47% of GDP in 2023/24 before falling back to 45% in 2024/25, 44% in 2025/26 and 2026/27, and 43% in 2027/28. 

Unlike in previous generations, the government is restricted in its ability to cut other areas of spending to cover expected further rises in spending on pensions, health and social care as the number of pensioners continues to grow. Savings in the defence and security budgets are no longer possible now that spending has fallen to not much more than the NATO minimum of 2% of GDP, down from in excess of 10% back in the day, while pressures across many other areas of the public sector will make achieving the cost savings already assumed in the forecasts a significant challenge.

This chart was originally published by ICAEW.

ICAEW chart of the week: Peak inflation?

Inflation is believed to have peaked last quarter before being forecast to fall significantly over the course of 2023. We hope.

Line chart showing annual inflation rates on a quarterly basis: 2021 Q1 0.6% Q2 2.1% Q3 2.8% Q4 4.9% 2022 Q1 6.2% Q2 9.2% Q3 10.0% Line switches from actual to forecast Q4 11.1% 2023 Q1 10.2% Q2 8.9% Q3 6.9% Q4 3.8%

Our first chart of 2023 is on the prospects for consumer price inflation (CPI) over the course of the coming year, based on the latest forecasts for inflation from the Office for Budget Responsibility (OBR) that were released on 21 December 2022.

The OBR’s calculations suggest that CPI should come down significantly over the next four quarters to reach 3.8% by the end of the year, ‘only’ 0.8% above the Bank of England target range of 1% to 3%. The return of inflation to more moderate levels should help stabilise an economy that is currently in a pretty bad place, although it is important to understand that prices will still be rising, just at a slower pace than they have been over the course of the past year.

The chart illustrates how inflation started to rise in 2021, from a below-target 0.6% in Q1, to 2.1% in Q2, then 2.8% in Q3, before jumping to 4.9% at the end of 2021. The Russian invasion of Ukraine in the first quarter of 2022 and its consequences for global energy prices drove the inflation rate even higher, to 6.2% in Q1, 9.2% in Q2 and 10% in Q3, before rising to a forecast peak of 11.1% in Q4 of 2022. The OBR then goes on to forecast that the rate of price increases experienced by consumers will moderate in the coming year, down to 10.2% in Q1, 8.9% in Q2, 6.9% and then 3.8% in the fourth quarter of 2023.

Of course, economic forecasts of this nature are inherently uncertain, especially given the role that volatile energy prices play, both in their own right but also as a cost input to many other products and services. For consumers, the withdrawal of the Energy Price Guarantee will mean energy bills are likely to rise significantly in the second quarter despite falling wholesale prices.

The chart does not extend into 2024, when the forecasts are even more uncertain than for the current year. The OBR suggests that inflation could turn negative during 2024 (Q1: 2.5%; Q2: 0.4%; Q3: -0.2%; Q4: -0.1%) and 2025 (Q1: -0.1%; Q2: -0.6%; Q3: -1.1%; Q4: -1.3%), before heading back to target in 2026 (Q1: -1.0%; Q2: -0.4%; Q3: 0.9%; Q4: 1.2%). Deflation brings with it a whole different set of economic challenges to be faced but, fortunately, forecasts are less accurate the further into the future they go. The hope is that the Bank of England will be able to time its switch in monetary policy actions from countering inflation to countering deflation just right in order to avoid this potential outcome.

Either way, the prospect of inflation coming down over the coming year is a positive amid an otherwise very bleak economic picture for the UK as we begin 2023.

This chart was originally published by ICAEW.

ICAEW chart of the week: Christmas 2022

Our final chart of 2022 shows how spending on Christmas is expected to fall significantly this year as the cost-of-living crisis takes its toll on family finances.

Step chart showing change in average spending per person on Christmas over the last three years (skipping Christmas 2020). Christmas 2019: £412 Inflation: +£23 Change: -£9 Christmas 2021: £426 Inflation: +£46 Change: -£79 Christmas 2022: £393

PwC’s annual pre-Christmas survey indicates that spending on Christmas was expected to be below pre-pandemic levels, with average spending of £412 in December 2019 (before the pandemic) increasing to £426 in December 2021, before falling to £393 this Christmas. 

The chart takes inflation into account to provide an illustration of what has happened to average spending in real terms. Excluding December 2020, when Christmas was cancelled for many of us, average spending would have been £23 higher if it had kept pace with inflation of 5.5% over the two years between 2019 and 2021, implying spending was expected to be £9 lower last Christmas than it had been before the pandemic.

The effect is even more marked this year, when keeping pace with consumer price inflation of 10.7% would lead to an extra £23 being spent compared with last Christmas. In this year’s survey, respondents expected to spend much less than in previous years, with an implied reduction of £79 or 17% after taking account of inflation.

We have used the overall CPI index as of November of each year presented in the chart, but in practice inflation runs at different rates for each element of spending. Food and non-alcoholic beverage inflation is currently running at over 16% meaning Christmas dinner is likely to cost even more this year, which for many is likely to offset any real terms ‘savings’ on alcohol where inflation is running at just over 4%.

According to PwC, 50% of spending on Christmas presents was expected to be completed around or before Black Friday in November, while 44% was planned for early to mid-December and 6% to be bought in the last week before Christmas or later. PwC also reports that the majority of Christmas present buying is now done online, with 55% ordered for delivery, 10% through click and collect, and just over a third to be purchased in-store.

Irrespective of how inflation is calculated, what is clear is that there is a substantial reduction in spending on Christmas festivities in 2022. This highlights how household finances are under significant pressure as we come to the end of the third year of the pandemic.

The ICAEW chart of the week is taking a break over the Christmas period and will return in 2023 with new charts on diverse subjects.

This chart was originally published by ICAEW.

ICAEW chart of the week: IMF Special Drawing Rights

My chart this week looks at the reserve currency assets that comprise the 660.7bn SDRs issued by the International Monetary Fund.

IMF Special Drawing Rights Treemap chart showing the breakdown by currency of the 660.7bn SDRs in issue x $1.33 per SDR = $880bn. USD: $383bn EUR: €246bn = £261bn CNY: ¥726bn = £105bn JPY: ¥8,888bn = $66bn GBP: £53bn = $66bn

Special Drawing Rights (SDRs) are reserve assets issued by the International Monetary Fund (IMF), the ‘international central bank’ for central banks. 

Just as national central banks create money by issuing currency in exchange for debt, the IMF creates its own form of ‘international money’ in the form of SDRs, balanced by long-term debt owed to the IMF by its member countries. 

To date, the IMF has issued 660.7bn SDRs, most recently in August 2021 when 456.5bn SDRs were issued to provide additional liquidity to member countries during the pandemic.

Countries are able to exchange the SDRs they are issued with for the underlying currencies that make up each SDR, providing them with international liquidity when they need dollars, euros, yuan renminbi, yen or pounds sterling or – in many cases – just dollars. According to the latest five-year currency weightings determined in July 2022, 1 SDR should be exchangeable for 0.57813 US dollars, 0.37379 euros, 1.0993 Chinese yuan, 13.452 Japanese yen and 0.08087 UK pounds. 

The chart illustrates what this means for the total of 660.7bn of SDRs in issue, which as of 5 Dec 2022 was calculated to be worth approximately $880bn in total based on a value of $1.33 per SDR. The total comprised $382bn in US dollars, €247bn in euros (worth $261bn at 5 Dec 2022), ¥726bn Chinese yuan ($105bn), ¥8,888bn Japanese yen ($66bn) and £53bn in UK pounds ($66bn).

In effect, 43.4% of the currency basket making up each SDR was US dollars, 29.7% was euros, 11.9% was Chinese yuan, 7.5% was Japanese yen and 7.5% was UK pounds.

Despite SDRs being an ‘international reserve asset’ that central banks and member countries can use to manage their own currencies, the IMF insists that SDRs are not a currency in their own right. Instead, it stresses that SDRs are merely an ‘accounting unit’ to be used for IMF transactions. However, despite these protestations, the IMF has concluded that SDRs are the functional currency for the purposes of its financial statements prepared in accordance with International Financial Reporting Standards.

The strength of the dollar means that SDRs at $1.33 each are worth $56bn less than the blended average rate of $1.42 each when they originally issued. This is because the non-dollar components of the currency basket, especially the euro and sterling, have fallen in value in relation to the US dollar in recent years.

At less than a trillion dollars, SDRs may seem quite small in comparison with the vast flows of money around the world. However, their importance to the international monetary system cannot be understated, keeping the financial wheels turning and providing central banks (especially those in smaller nations) with essential liquidity when they need it most.

This chart was originally published by ICAEW.

ICAEW chart of the week: Language proficiency in England and Wales

This week I take a look at the data on languages contained within the latest release of information from Census 2021 for England and Wales.

Chart with dotted grid (100 x 100) with 10 dots to 0.1%. English or Welsh as main language 91.1% Speaks English very well 3.9% Speaks English well 3.2% Speaks English not well 1.5% Does not speak English 0.3%

The Office for National Statistics (ONS) on 29 November released its latest batch of analysis from the 2021 Census, this time on ethnicity, national identity, language and religion.

Our chart this week delves into this by looking at language proficiency, illustrating how 91.1% (52.6m) of the population in England and Wales speaks English (or Welsh in Wales) as their main language.

A further 7.1% (4.1m) are classified as proficient in English, broken down into 3.9% (2.3m) who speak English very well and 3.2% (1.8m) who speak English well. The remaining 1.8% (1.1m) of the population can be broken down between 1.5% (0.9m) who speak some English and 0.3% (0.2m) who speak no English at all.

The top 10 languages spoken by those for whom English or Welsh was not their main language comprised Polish (612,000 or 1.1%), Romanian (472,000 or 0.8%), Panjabi (291,000 or 0.5%), Urdu (270,000 or 0.5%), Portuguese (225,000 or 0.4%), Spanish (215,000 or 0.4%), Arabic (204,000 or 0.3%), Bengali (199,000 or 0.3%), Gujarati (189,000 or 0.3%) and Italian (160,000 or 0.3%).

Surprisingly, the release does not include data on the proportion of Welsh language speakers in Wales, with a more detailed analysis scheduled to be published by the Welsh Government on 6 December.

The proportion of people who speak English (or Welsh in Wales) as their main language has dropped from 92.3% in the last census in 2011 to 91.1% in 2021, while the proportion of those with another main language who are proficient in English increased from 6.1% in 2011 to 7.1% in 2021. The proportion who do not speak English or who do not speak English at all increased from 1.6% in 2011 to 1.8% in 2021.

While the numbers not able to speak English proficiently remain relatively small as a proportion of the overall population, this still represents more than a million people who are unable to function effectively. Many will be newer arrivals in the process of learning English, but some will be longer-term residents who would benefit from better English language skills.

One question for both local authorities and central government is how much to invest in English language teaching. Finding the money is likely to be difficult at a time of constrained public expenditure budgets, but there may be savings elsewhere such as the cost of interpreters.

This chart was originally published by ICAEW.

ICAEW chart of the week: Migration

The latest migration statistics for the year to June 2022 come with a health warning from the ONS that its ‘experimental and provisional’ numbers for people movements during a pandemic may not be representative of long-term trends.

Column chart showing migration flows for the year to June 2022: Non-EU inflows: Work +151,000, Study +277,000, Settlement schemes +138,000, Other reasons +138,000 Non-EU outflows: -195,000, Net = +509,000 EU inflows: Work +88,000, Study +71,000, Other reasons +65,000. EU outflows: -275,000, Net = -51,000 UK inflows: Work +47,000, Study +8,000, Other reasons +81,000 UK outflows: -90,000, Net = +46,000.

On 24 November 2022 the Office for National Statistics (ONS) published its latest ‘experimental’ statistics on net migration, provisionally reporting that net long-term migration to the UK amounted to 504,000 in the year to June 2022. This compares with estimates for net inward migration of 173,000 in the year to June 2021 and 88,000 in the year to June 2020. 

This is equivalent to approximately 0.7% of the UK’s total population and is more than double the net inward migration assumption of 237,000 for the same period used by the ONS in its most recent principal long-term projection for the UK population.

The ONS cautions that the middle of a pandemic may not be representative of long-term trends, given possible pent up demand following restrictions in movements in the previous two years.

The ONS also points out the large jump in the number of non-EU students coming to study in the UK, which boosts immigration numbers in the current year. This should in theory reverse in three to four years’ time when many (but not all) of these students return to their home countries or move elsewhere.

Non-EU

As the chart illustrates, immigration from countries outside the EU in the year to June 2022 comprised 151,000 people coming to work in the UK, 277,000 coming to study, 138,000 under settlement schemes and a further 138,000 coming for other reasons. Around 195,000 people from outside the EU were estimated to have left during the year, giving a net inward migration number for non-EU citizens of 509,000. This compares with 157,000 during the year ended 30 June 2021 and 51,000 in the year before that.

The numbers from outside the EU coming to work has increased from 92,000 in the year to June 2021 and 81,000 in the year to June 2020, offsetting some of the reduction in those coming from the EU to work. Those coming to study have increased by an even greater proportion (from 143,000 and 136,000 in the preceding two years respectively), although this may represent pent-up demand from the pandemic when it was much more difficult for students wishing to start courses in the UK. However, the ONS does comment that the new graduate visa that permits students to stay and work in the UK for up to three years after completing their studies may have encouraged more students to come. 

The 138,000 arriving under settlement schemes in the year to June 2022 included an estimated 89,000 Ukrainians who were resettled in the UK under the Ukrainian scheme, approximately 21,000 Afghans under the Afghan resettlement scheme and an estimated 28,000 of the 76,000 Hong Kong residents granted British national overseas (BNO) visas during the year. 

The ONS does not give a full breakdown of the other reasons why people are coming to the UK, which principally relate to those joining family, those planning to stay temporarily but for longer than a year, refugees granted asylum during the year and any other reason not classified by the ONS. The numbers exclude 35,000 people that arrived by small boats during the period, although those who are granted asylum will show up in the statistics in subsequent periods.

EU

Inward migration from the EU has gone into reverse since the ending of free movement on 31 December 2020, with net outward migration of 51,000 for the year to June 2022 compared with net inward migration of 12,000 and 26,000 in the two preceding years. 

As the chart illustrates, the 88,000 people coming from the EU to work, 71,000 to study and 65,000 coming for other reasons – a total of 224,000 people – were more than offset by the 275,000 who left the UK. Those coming to the UK include Irish citizens who do not need visas to live and work in the UK, in addition those coming from other EU countries who now need to apply for visas before they can come to live and work in the UK. 

UK

There was a net inflow of 46,000 UK citizens, as an estimated 136,000 who returned home exceeded the estimate of 90,000 who emigrated from the UK. Of those coming back to the UK, 47,000 came to work, 8,000 to join family and 81,000 for other reasons. This compares with net inflows of 4,000 and 11,000 in the two preceding years.

Health warnings

The ONS provides a range of health warnings for this data set, labelling the numbers as ‘experimental and provisional’, as well as relating to an unusual year for international migration. The numbers were affected by the coronavirus pandemic, the settlement schemes for Ukrainians, Afghans and Hong Kong residents, and by the ending in the preceding year of free movement for EU citizens wishing to come to the UK and for UK citizens to live and work in the EU.

From an economic perspective, Chancellor Jeremy Hunt will no doubt be pleased at the additional workers that have arrived in the UK at a time of labour shortages, as well as the success of the university sector in attracting international students, some of whom are likely to stay at the end of their courses to work. Many of those arriving to join family or for other reasons will also join the workforce, further helping to grow economic activity.

With a national workforce that would shrink otherwise and many businesses calling for more freedom to recruit from overseas, the Chancellor may well be hoping for higher levels of migration to continue – even if some of his ministerial colleagues are likely to be less than positive about this possibility.

This chart was originally published by ICAEW.

ICAEW chart of the week: Autumn Statement

The public finances have been a rollercoaster ride over the last few months, as illustrated by this week’s chart showing how the forecast for the fiscal deficit in 2026/27 has changed since the Spring Budget.

Step chart showing changes in the forecast deficit for 2026/27: Spring Budget forecast: -£32bn Higher interest charges: -£47bn Economic forecast changes: -£28bn Mini-Budget measures: -£45bn Mini-Budget reversals: +£29bn Autumn Statement measures: +£43bn = Autumn Statement forecast: -£80bn

Former Chancellor and now Prime Minister Rishi Sunak expressed some optimism back in March when he presented his Spring Budget, commenting how he remained committed to achieving a current budget surplus despite the huge amounts spent supporting individuals and businesses through the pandemic, and the support he was then offering to help with energy bills as they started to soar.

My chart this week illustrates how the fiscal situation has deteriorated significantly as rising interest rates, accelerating inflation, and an economy entering recession have adversely affected the public finances. Together with the additional energy support measures announced by then Prime Minister Liz Truss in September, the shortfall between receipts and expenditure is expected to be £270bn higher over a five-year period to 2026/27 than was forecast by the Office for Budget Responsibility back in March.

In 2026/27 itself (the year ending 31 March 2027), interest charges are expected to be £47bn higher than previously forecast, while tax receipts and other forecast changes are expected to require an extra £28bn in additional funding (of which £25bn relates to lower tax receipts). 

In theory this would result in a deficit of £107bn, which is why it was surprising that then Chancellor Kwasi Kwarteng decided to announce unfunded tax cuts amounting to £45bn a year by 2026/27. Although Kwarteng was hoping his planned tax cuts would help stimulate the economy, if they hadn’t then the deficit could have risen to more than £150bn, an unsustainable level that caused financial markets to take fright – even if they and we didn’t have the official numbers at that point.

Reversals to the mini-Budget followed as Chancellor Jeremy Hunt and Prime Minister Rishi Sunak attempted to reassure markets of their fiscal credibility, with £43bn in tax and spending changes to plug some of the gap. These comprise tax rises amounting to around £23bn a year (more than offsetting the £16bn of tax cuts retained from the mini-Budget), together with £20bn in lower levels of public spending than previously planned.

Together the forecast changes and government decisions give rise to a forecast deficit of £80bn in 2026/27, significantly higher than previously forecast. This is not a comfortable place for the public finances, with the Chancellor having to abandon the government’s previous commitment to achieving a current budget surplus in addition to, as expected, deferring the point at which he expects to see the underlying debt-to-GDP ratio start to fall from three to five years into the future.

Both tax and spending measures primarily involve fiscal drag, freezing tax allowances so that more people are brought into paying tax or paying tax at higher rates, and severely constraining public spending. Although it might be theoretically possible to hold the line on both tax and spending constraint for the next five years, there are likely to be some adjustments needed in the Spring Budget as pressures on public services mount, while the most difficult decisions have been postponed until after the next general election.

This week’s chart is not a pretty picture.

This chart was originally published by ICAEW.

ICAEW chart of the week: Overseas travel

My chart this week is about visits abroad by UK residents, illustrating how people have started to travel again following restrictions during the pandemic.

Column chart showing number of foreign trips by UK residents by calendar quarter. 2017: 15.9m, 23.7m, 28.7m. 18.9m 2018: 16.6m, 24.6m, 29.9m, 19.4m 2019: 18.2m, 25/8m, 30.0m, 19.2m 2020: 13.9m, 0.9m, 6/2m, 2.8m 2021: 0.9, 1.2m, 8.1m, 9.0m 2022: 9.4m, 20.4m

Visits abroad by UK residents have picked up following the depths of the pandemic but have yet to recover to pre-pandemic levels.

According to the Office for National Statistics, the number of visits abroad by UK residents by quarter amounted to 15.9m, 23.7m, 28.7 and 18.9m in 2017; 16.6m, 24.6m, 29.9m and 19.4m in 2018; 18.2m, 25.8m, 30.0m and 19.2m in 2019; 13.9m, 0.9m, 6.2m and 2.8m in 2020; 0.9m, 1.2m, 8.1m and 9.0m in 2021; and 9.4m and 20.4m in the first two quarters of 2022.

Although substantially higher than at the height of COVID-19 travel restrictions, trips abroad during the first half of 2022 were still substantially lower than before the pandemic. 

The 20.4m visits during the second quarter of 2022 comprised 15.1m to countries in the European Union, 1.3m to other European countries, 1.0m to North America and 3.0m to other countries around the world. Of these trips, 13.4m were for holidays, 5.1m were to visit friends or relatives, 1.4m for business and 0.5m were for other reasons. 

These numbers compare with 25.8m visits in the second quarter of 2019, comprising 18.9m to the EU, 1.4m to other European countries, 1.6m to North America and 3.9m to the rest of the world. This comprised an estimated 16.8m holidays, 6.0m visits to friends or relatives, 2.5m business trips and 0.5m other.

The amount spent by travellers in the second quarter of 2022 was estimated to be £15.8bn, an average of approximately £775 per visit. This compares with an average of around £630 in the second quarter of 2019, reflecting a weaker pound, inflation and the mix of travellers and countries visited.

Trips abroad during the key summer quarter of July to September 2022 has yet to be released by the ONS, so we wait to see whether there will be anywhere near the peak of 30.0m visits recorded in Q3 of 2019.

This chart was originally published by ICAEW.

ICAEW chart of the week: IFS forecast deficit

My chart this week illustrates how tax cuts, higher interest charges and energy support packages contribute to the Institute for Fiscal Studies forecast of big increases in the fiscal deficit over the next few years.

Column chart showing changes between the OBR March 2022 forecast deficit and the IFS post-miniBudget forecast (after top-rate tax reversal) 2022/23: £99bn (OBR forecast) +£75bn (energy support packages) +£20bn (interest and other) = £194bn (IFS forecast) 2023/24: £50bn + £43bn (energy) +£56bn (interest and other) + £27bn (tax cuts) = £176bn 2024/25: £37bn + £11bn (energy) + £29bn (interest) + £30bn (tax cuts) = £107bn 2025/26: £35bn + £29bn (interest and other) + £37bn (tax cuts) = £101bn 2026/27: £32bn (OBR) + £28bn (interest and other) + £43bn (tax cuts) = £103bn (IFS).

The Institute for Fiscal Studies (IFS) published its annual Green Budget pre-Budget report on Tuesday 11 October. My chart this week summarises how the government’s energy support packages, higher interest rates and planned tax cuts contribute to a big jump in the fiscal deficit for the next few years up until the financial year ending 31 March 2027 (2026/27).

The chart starts with the Office for Budget Responsibility’s March 2022 Economic and Fiscal Outlook forecast for the deficit of £99bn in 2022/23, £50bn in 2023/24, £37bn in 2024/25, £35bn in 2025/26 and £32bn in 2026/27.

Forecasts from the IFS suggest that the deficit will almost double to £194bn in the current financial year, principally as a consequence of the £75bn cost-of-energy support packages announced by the government in May and September 2022, together with £20bn from higher interest and other forecast changes. The £7bn in lost tax revenue from cancelling the national insurance rise from November onwards and £1bn from cutting stamp duty is offset by £8bn in anticipated receipts from the energy windfall tax introduced by Rishi Sunak in May. 

In the next financial year 2023/24, the IFS has forecast a £126bn increase in the forecast deficit from the OBR’s £50bn back in March to £176bn. This comprises an estimated £43bn cost of the domestic energy price guarantee, an extra £56bn from the effect of higher interest costs and other forecast changes, and £27bn in lower receipts as a consequence of the tax cuts announced by Chancellor of the Exchequer Kwasi Kwarteng on 23 September and partially reversed on 4 October. 

The IFS emphasises that the forecast for the cost of domestic energy price guarantee is highly uncertain given how volatile energy prices are; it could vary up or down by tens of billions of pounds. There is also nothing in the forecast for an extension of the temporary energy support package for businesses that is due to expire on 31 March 2023, despite the potential that this may be required if energy prices remain elevated.

Higher interest charges are driven by a number of factors, including higher Bank of England base rates over the next few years, an increase in the yields on government borrowing when debt is refinanced, the effect of higher inflation on gilts linked to the retail prices index and the higher level of debt consequent on running bigger deficits. Other forecast changes principally relate to the effect of higher inflation on receipts and spending.

The effect of the tax cuts in 2023/24 has been estimated by HM Treasury to reduce receipts by £18bn from the cancellation of the national insurance rise, £11bn from cancelling the previously legislated increase in corporation tax from 19% to 25% from 1 April 2023, £5bn from implementing the cut in the income tax base rate from 20% to 19% a year early, £1bn from cutting stamp duty, £1bn from permanently setting the annual investment allowance for businesses to £1m and £1bn from rolling back IR35, net of £10bn generated by the energy profits levy.

In 2024/25, the forecast assumes energy prices continue to reduce, resulting in a cost for the final six months of the energy price guarantee to £8bn to add to the £37bn forecast by the OBR back in March. Higher interest and other forecast changes should add £29bn, while the government’s tax cuts should add a further £30bn, resulting in a new forecast for the deficit that year of £107bn. Similarly in 2025/26, the OBR’s spring forecast of £35bn has been revised up to £101bn, comprising £29bn from higher interest and other forecast changes and £37bn from tax cuts. 

In 2026/27, the IFS forecasts the deficit to be £103bn, with the OBR March forecast of £32bn being increased by £28bn for higher interest charges and other forecast changes and £43bn from the effect of tax cuts. The latter comprises £19bn from the cancellation of the health and social care levy, £18bn from the cancellation of the corporation tax rise to 25%, £2bn from the cut in stamp duty, £2bn from a VAT-free shopping scheme for tourists, and £2bn in other tax measures.

While the huge cost of the government’s energy support packages is the largest contributor to the increase in the deficit in the first two years of the forecast, it is the persistent effect of higher interest rates combined with tax cuts that is the bigger concern for the IFS. Based on its calculation, it suggests that public spending cuts of £62bn a year might be necessary to achieve a falling ratio of debt to GDP by the fifth year of the forecast period – a not insignificant sum.

This chart was originally published by ICAEW.