Tag: #chartoftheweek

ICAEW chart of the week: UK debt financing requirement

16 October 2020: The Institute for Fiscal Studies annual pre-Budget report forecasts a doubling to £1.5tn in the amount of debt to be raised by the UK Government over the next five years.

UK debt financing requirement by year from 2020-21 to 2024-25, adding up to £757bn (March 2020 budget), £1,305bn (optimistic), £1,536bn (central) and £1,789bn (pessimistic forecast).

Although the Budget itself may have been delayed, the IFS Green Budget 2020 has been published on schedule, with a wealth (if that is the right word in the current context) of analysis on the economy and the public finances. 

With £201bn in discretionary measures and a £95bn economic impact from the coronavirus pandemic, the IFS is forecasting that the deficit will reach £350bn in the current financial year. At 17% of GDP, this is a level never before seen in the UK outside of the two world wars. 

Unfortunately, the effect of the pandemic on public finances will not be restricted to this financial year. Even if the economy recovers in 2021, or more likely in 2022, tax revenues will be significantly lower and spending significantly higher than they were previously expected to be.

This is perhaps best highlighted by looking at the UK Government’s gross financing requirement – the amount that the UK Debt Management Office (DMO) will be tasked with raising from external debt investors over the next five years to finance the shortfall in taxes compared with spending (the deficit), to finance business and other lending and to repay existing debts as they fall due. This is forecast by the IFS to double to £1.5tn in their central forecast, within a range from £1.3tn in a more optimistic scenario to £1.8tn in a more pessimistic scenario.

As the IFS points out, the enormous amount of debt being issued means that even small differences in financing costs will have a very large impact on the public finances. This is despite the sizeable proportion of debt being issued with long maturities (as long as 50 years in some case) that are locking in extremely low interest rates for decades to come.

Reducing interest costs on debt has provided the Chancellor with room to provide the unprecedented levels of financial support to the UK economy that we saw over the summer. The prospect of negative nominal rates could see investors paying the Government rather than the other way round, providing headroom for further interventions.

There is a downside, of course. The ‘good times’ of ultra-low interest rates may not last for ever, and with a central debt forecast at 31 March 2025 of 112% of GDP significantly higher than the 35% of GDP before the financial crisis a dozen years ago the exposure to changes in interests is that much more significant.

To find out more about the latest forecasts for the economy and the impact that will have on the public finances, please do read the IFS Green Budget 2020.

This chart was originally published by ICAEW.

ICAEW chart of the week: Local government in England

9 October 2020: The complex structure of regional and local authorities in England is just begging for reform, but will the rumoured plan to abolish county and district councils fix it for good?

Chart with three rings: regional tier, county or unitary tier and then district council tier, showing lots and lots of councils in England.

Local government in England, as illustrated by the #icaewchartoftheweek, is pretty complex with eight different types of regional or principal authority and a patchwork quilt of different tiers of government across the country.

This complex system comprises areas without a regional tier of government involving unitary authorities or county & district councils, and those with combined authorities atop unitary authorities or metropolitan boroughs (and one county and its districts) and the Greater London Authority atop 32 London boroughs and the City of London. (This excludes the 9,000 or so town, village and other forms of parish councils in England, mostly outside the major urban areas).

This complexity makes it very difficult for the Government to interact with local authorities in the absence of a consistent model of local government or a country-wide regional tier of government to act as intermediary. This contrasts (for example) with the federal system in Germany, where Chancellor Angela Merkel regularly speaks to the leaders of the 16 German states, who in turn deal with the local authorities in their areas. Similarly (although not formally federal), France has 13 mainland and 5 overseas regional administrations that President Emmanuel Macron and Prime Minister Jean Castex can talk to and who will deal with their constituent provinces.

The UK Government can and does communicate with London Mayor Sadiq Khan, Greater Manchester Mayor Andy Burnham, West Midlands Mayor Andy Street, West Yorkshire Chair Susan Hinchcliffe, Liverpool City Region Mayor Steve Rotherham, Sheffield City Region Mayor Dan Jarvis, North East Chair Iain Malcolm, West of England Mayor Tim Bowles, Cambridgeshire & Peterborough Mayor James Palmer, North of Tyne Mayor Jamie Driscoll and Tees Valley Mayor Ben Houchen, each of whom can represent their constituent local authorities. But, they only represent 44% of the English population, with a further 24 county council leaders and 46 unitary authority leaders to speak to cover the remaining 56%. That is a pretty big Zoom call, assuming borough and unitary leaders within the regional authority areas don’t also insist on joining in.

The delayed announcement of a plan to abolish the 25 county and 188 district councils and replace them with between 25 and 40 new unitary authorities (perhaps with some mergers with existing unitary authorities) will go some way to rationalising the existing system by going to a single tier of principal local authorities. This would bring local public services together under one roof and save money, albeit there are some concerns about whether some of the new authorities would be too remote from the local citizenry.

However, this is still likely to leave English local government reform unfinished with over half the country without a regional tier of government. Will the Government want to continue with its existing organic approach of combined authority formation or go for a more comprehensive programme to establish regional authorities across the whole country, similar to the French reforms of the 1980s?

This chart was originally published by ICAEW.

ICAEW chart of the week: Quarterly GDP

2 October 2020: The latest statistics for the UK economy generate a grim graphic for the #icaewchartoftheweek.

Chart showing GDP by quarter from 2018 Q1 to 2020 Q2: £528bn, £533bn, £539bn, £542bn, £548bn, £551bn, £556bn, £558bn, £556bn, £476bn.

According to latest numbers from the Office for National Statistics (ONS) released on 30 September 2020, GDP for the second quarter to June 2020 fell to £476bn, a 14.5% fall in economic activity compared with the previous quarter, which in turn was 0.5% lower than the last quarter of 2019.

This week’s chart not only illustrates the damage done by the coronavirus pandemic to the economy in the first half of 2020, but also highlights how poorly the economy was performing in past couple of years, with seasonally-adjusted GDP increasing by an average of 0.8% a quarter from £528bn in the first quarter of 2018 to £558bn in the fourth quarter of 2019.

These percentage changes do not take account of the effect of inflation, with the ONS reporting a headline fall of 19.8% in real GDP in the second quarter and a 2.5% drop in the first quarter on a chained volume basis (the method used by the statisticians at the ONS to adjust for the effects of changing prices and output levels across the economy). Average quarterly real economic growth in the seven quarters to Q4 2019 was just 0.3% and around half that on a per capita basis.

The two pieces of good news are that the decline in GDP in the second quarter was less steep than originally feared, while we also know that the economy has recovered to a significant extent in the third quarter to 30 September, although we won’t know by how much until the statistics are published in November. Unfortunately, with local lockdowns across the country, the likelihood is that it will be sometime before our lives return to normal.

This chart was originally published on the ICAEW website.

ICAEW chart of the week: China

18 September 2020: The #icaewchartoftheweek is on China: with 1.4bn people, the largest country in world by population.

Following up on our chart on the United States of America a couple of weeks ago, this time we are looking at China, which has more than four times as many people as the USA and more than 20 times as many as the UK.

There are a number of different ways of allocating China’s 33 first-level administrative divisions (excluding Taiwan) into wider regions, but for this particular chart we have gone with the five military districts used by the People’s Liberation Army, which divides up the provinces into Western, Southern, Central, Eastern and Northern China.

Three regions are similar in population size to the USA, with the 346m population of Central China and 337m of Southern China exceeding the USA’s 332m, while Eastern China with 315m people is not far behind. Northern China with 235m people has about 70% of the numbers in the USA, while Western China with 183m has just over half as many. They all substantially exceed the UK’s 69m population.

At 9.60m square kilometres China is marginally smaller than the USA’s 9.84m, although if inland waters are excluded this turns around with China’s 9.33m square kilometre land area exceeding the USA’s 9.15m. Hence, there is around four times as much space per person in the USA than in China, which in turn has twice as much space per person as for the UK.

Economically, China was around 30% bigger than the USA on a ‘purchasing power parity’ (PPP) basis in 2019, when US GDP was $21.4tn. However, based on actual exchange rates, China’s economy was around two-thirds of the size. Economic activity per person in China in 2019 was around $20,000 on a PPP basis and $10,000 on an actual exchange rate basis, compared with the $64,000 or so per person that was generated in the USA. This compares with the UK, where economic activity in 2019 was in the order of $45,000 per person using PPP and $41,000 using actual exchange rates.

China is not expected to remain the largest country by population for much longer, with India’s just under 1.4bn people expected to grow at a faster rate to overtake China within the next decade.

Image of table showing population by province within each region. For readable version of the table please go to the original ICAEW chart using the link at the end of this post.

This chart was originally published on the ICAEW website.

ICAEW chart of the week: Foreign, Commonwealth & Development Office

11 September 2020: The UK’s highly regarded diplomatic service in the FCO was combined last week with the UK’s highly respected international development department DfID to form a new government department – the FCDO.

Chart on net expenditure 2019-20 FCDO £2,750m + DfID £10,350m = £13,100m.

The newly established Foreign, Commonwealth & Development Office (FCDO) is the subject of the #icaewchartoftheweek, illustrating the amounts spent by its predecessor departments in the financial year ended 31 March 2020. The Foreign & Commonwealth Office (FCO) incurred net expenditure in the order of £2,750m, while the Department for International Development (DfID) spent £10,350m, a combined total of £13.1bn.

Although DfID was the bigger department in financial terms, the FCO was larger operationally with 13,751 staff in 2019-20 (5,263 in the UK and 8,488 abroad) compared with the 3,535 employed by DfID (2,628 in the UK and 773 abroad). As a consequence, net operational spending amounted to somewhere in the region of £1,250m for the FCO, while DfID cost in the order of £350m to run.

The FCO spent approximately £700m in 2019-20 on international programmes, including grants to the British Council and the BBC World Service amongst others. The other big element of its spending of just under £800m was on conflict prevention, stability and peacekeeping.

DfID spent around £2,150m on international development programmes and organisations, policy, research and evidence and humanitarian aid and £750m on conflict, security and stabilisation. Around £3,000m was spent on economic development, while £4,100m went to regional programmes, including approximately £900m in west and southern Africa, £1,300m in east and central Africa, £850m in the Middle East and north Africa and £1,050m in Asia and elsewhere in the world.

DfID has provisionally calculated that total development spending across the UK Government, including by the FCO, DfID, Home Office, Business, Energy & Industrial Strategy and Department for Environment, Food and Rural Affairs departments, amounted £15.2bn in total in the 2019 calendar year. This was in line with the UK Government’s legally binding commitment to spend 0.7% of Gross National Income on development. This includes a proportion of the EU’s spending on international development but excludes the UK’s contributions towards development within the EU, in particular in eastern European member states.

The coronavirus pandemic has reduced the size of the economy this year and hence the 0.7% calculation will result in a smaller amount to spend in 2020-21, hence the combined budget for the FCDO will be smaller than the amount spent in the last financial year.

The new department is abbreviated to FCDO in writing, which the Government is insisting should be spoken out loud as ‘focado’ (similar to the online grocery store), no doubt in a valiant attempt to prevent other forms of short-form pronunciations becoming popular.

This chart was originally published on the ICAEW website.

ICAEW chart of the month: Cricket – England v West Indies 3rd Test

31 July 2020: Summer is the time for a special edition of the #icaewchartofthemonth, celebrating the victory of the English men’s cricket team over the West Indies in the 3rd Test at Old Trafford, resulting in a 2-1 series win for England.

Chart: England 1st innings 369 + 2nd innings 226 = 595. West Indies 1st innings 197 + 2nd innings 129 = 269 short of target.

Many explanations of cricket as a sport tend to focus on the intricacies of how it is played but in practice, the aim is pretty simple – one team sets a target by scoring as many runs as they can and the other team then tries to beat that target. Of course, like most sports, the joy is often as much in the skills of the players and the tactics deployed as much as who wins or loses, but the principal objective remains the same: score more runs than the other team.

West Indies no doubt regretted putting England into bat first, as England proceeded to score 369 runs in the first innings, significantly better than the 197 the West Indies team achieved in reply. England then extended their total by adding 226 runs before declaring, giving the West Indies a stretching target of 398 to tie or 399 to win. A strong England bowling performance meant West Indies only achieved 129 by the time they were bowled out mid-afternoon on the fifth day, falling short of the overall target of 595 runs by 269.

Stuart Broad had a stand-out match, scoring 62 runs in England’s first innings and taking 6 and 4 wickets respectively in the West Indies’ two innings – including the 500th wicket of his international test career. Chris Woakes, who took 5 of the West Indies’ wickets in their second innings, was the other key English bowler, while Rory Burns (scoring 147 runs across two innings), Ollie Pope (91) and Joe Root (85) were the highest scoring English batsmen. More details are in the scorecard.

Cricket can be a mystery to many, with unique features such as whole days abandoned to rain – as the fourth day of this test match was. Some have even likened cricket to a ritualised rain-dance, helping to make England the green and pleasant land that it is. For others, cricket is a different sort of mystery, providing sporting magic that makes an English summer complete.

The #icaewchartofthemonth and #icaewchartoftheweek will be off for August before returning on Friday 4 September. We hope that you will be able to take some time off to enjoy the summer, wherever and however that may be possible.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK population in lockdown

3 July 2020: Only a fraction of the population was working at their normal workplace during the Great Lockdown, but what will happen as businesses start to re-open and the furlough scheme becomes less generous?

UK population 67m: workforce 34m (working at workplace 9m, working from home 10m, furloughed 12m, unemployed 3m); outside workforce: children & students 16m, retired 12m, other inactive 5m.

The #icaewchartoftheweek takes a look at the workforce this week, illustrating how the lockdown has transformed the world of work over the last three months.
 
Our (admittedly) back of the envelope calculations based on ONS and HM Treasury data suggest that only around 9m of the 34m strong workforce have been working normally at their ordinary places of work during the lockdown, with somewhere in the region of 10m working remotely. In addition, just under 12m workers have been furloughed, comprising 9.3m employees on the coronavirus job retention scheme (CJRS) and 2.6m self-employed on the self-employed income support scheme (SEISS).
 
Unemployment, which was around 1.2m back in February, has jumped to an extrapolated estimate of around 2.7m by the end of June and is likely to grow still further as the furlough scheme becomes less generous from 1 July. The ONS’s experimental claimant count metric, which includes a wider group of workers needing financial support from the state, had reached 2.8m by the end of May and is expected to have exceeded 3m by the end of June.
 
The overall workforce of 34m excludes the 33m ‘economically inactive’ half of the population, comprising 16m children and students, 12m retirees and 5m other inactive individuals. The 2.1m students over the age of 16 included in this category excludes around 1m or so students with part-time work or who were looking for work prior to the lockdown who are included in the workforce numbers, while retirees include around 1.2m below the age of 65 who have taken early retirement. Other inactive individuals between the ages of 16 and 64 include 1.8m homemakers, 2.3m disabled or ill, and 1.1m not working for other reasons.
 
These numbers are a moving target as more workers will start to return to their normal workplaces over the next few weeks as the economy starts to re-open, even if many continue to work from home where they can. More worryingly, unemployment is likely to rise significantly with the furlough scheme requiring an employer contribution from July onwards and when it comes to an end in October.

This #icaewchartoftheweek was originally published by ICAEW.

ICAEW chart of the month: Cabinet government

26 June 2020: The prime minister has announced a reduction in the number of government departments. How big is the cabinet compared to the rest of the world?

The news that the UK Government is reducing the number of government departments by one prompts the #icaewchartofthemonth to take a look at the size of government executives across the world.
 
As the chart highlights, with 26 members, the UK cabinet is one of the largest amongst major economies – comprising the prime minister Boris Johnson, 21 department ministers and four ‘ministers attending cabinet’. This does not include the Cabinet Secretary or other officials, meaning that cabinet meetings generally involve more than 30 people in total.
 
Compare that with the more compact 16-member German federal cabinet (Chancellor Angela Merkel and 15 departmental ministers) and the ten-member Chinese state council executive (comprising the premier Li Keqiang, five vice-premiers and four other senior departmental ministers).
 
It is certainly much larger than FTSE-100 company boards, where the average size is 11, and very few listed companies have more than 16 board members.
 
There is some debate around whether reducing the size of the UK cabinet would be more conducive to effective government. Some suggestions that the merger of the Department for International Development (DfID) with the Foreign & Commonwealth Office (FCO) to form the new Foreign, Commonwealth & Development Office (FCDO) in September is the first step on the way to that goal – with further mergers possible. However, although there will be one fewer departmental minister, there is a reasonable prospect of the minister responsible for development at the FCDO being invited to attend cabinet given its importance to the government’s global agenda.
 
Of course, merging departments is not the only way to achieve a slimmer cabinet – for example, the 31-member Russian cabinet (not shown in the chart) rarely meets as one body. Instead, there are regular meetings of the 10-strong prime ministerial group (the prime minister Mikhail Mishustin and nine deputy prime ministers) and occasional meetings of the 20-strong cabinet praesidium that includes the most senior ministers as well.
 
The UK Cabinet also works in this way to a certain extent, with critical decisions often being made in smaller groupings of senior ministers, such as the 9-member National Security Council, the 9-member Climate Change Committee or the 12-strong EU Exit Operations Committee for example. Canada, with its 37-member cabinet, also operates through a series of cabinet committees ranging from around 8 to 15 members. However, in both cases, the full cabinet still meets regularly and remains the formal executive body for authorising government actions.
 
With rumours of a cabinet reshuffle in the UK this autumn, it will be interesting to see whether moves to reduce the size of the cabinet will actually take place or whether we will see further development of cabinet committees as the places to be ‘in the room where it happens’.

This chart of the month was originally published by ICAEW.

ICAEW chart of the week: PFI contracts past their peak

12 June 2020: PFI contract payments have started to decline following a peak of £10.2bn in 2019-20.

The #icaewchartoftheweek is on private finance initiative (PFI) contracts, illustrating how payments on the UK’s portfolio of over 700 ongoing PFI and PFI2 contracts reached a peak of £10.2bn in the financial year ended 31 March 2020.

Total payments are expected to fall over the years to come as contracts start to come to the end of their (in most cases) 25 to 30-year terms, with the majority scheduled to expire between 2025 and 2050.

The tailing off of payments reflects the lack of new PFI deals to replace expiring contracts since 2010, when PFI2 was introduced without much success and the announcement in 2018 that PFI was over. News is still awaited on whether a new model for public-private partnerships will be adopted to replace PFI, following on from the Infrastructure Finance Review.

In the meantime, the remaining 704 ongoing contracts still need to be managed, including ensuring assets are handed back to public sector in good condition. This will be a big challenge for public bodies, with the National Audit Office recommending that preparations start seven years in advance of the end of each PFI contract.

This chart was originally published by ICAEW.

ICAEW chart of the week: EU spending plans 2021-27

5 June 2020: European Commission proposes €2tn in spending over the next seven years, including a major stimulus package – as illustrated by the #icaewchartoftheweek.

Last week the European Commission submitted its formal proposal for the EU’s multiannual financial framework for 2021 through 2027. This is the outline budget that sets out the EU’s medium-term financial priorities and forms the starting point for each year’s budget.

The proposals include an annual budget for financial commitments of €167bn in 2021, rising to €192bn in 2027 – a total of €1,241bn including inflation or €1,100bn in 2018 prices. There is also a one-off €809bn (€750bn in 2018 prices) proposal for a ‘Next Generation’ economic recovery plan in the aftermath of the coronavirus pandemic, to be funded initially by borrowing.

Although the outline budget of €167bn for 2021 is smaller than the €173bn amended commitments budget for the current financial year, it is actually a significant increase once the departure of the UK is taken into account – at least assuming the UK-EU transition period is not extended for a further one or two years.

The largest area of spending is on regional and social development (‘cohesion and values’ in EU jargon), including programmes such as the European Development Fund, the European Social Fund, the Cohesion Fund and Erasmus.

This is followed by agriculture and environment, the majority of which relates to agricultural subsidies and rural development as well as environmental and climate action programmes.

Science, digital and single market includes spending on research and development (including Horizon), the European space programme, Connecting Europe (transport, energy and digitally), Digital Europe, and the operation of the single market.

Security and migration bring together ‘migration and border management’ with ‘resilience, security and defence’, while External includes the cost of development programmes (principally in neighbouring countries), humanitarian aid, and pre-accession assistance for candidate countries that have applied to join the EU.

Spending on institutions mainly comprises the administrative costs of the European Commission, the European Council and the European Parliament, together with other agencies, European Schools, and pensions.

These numbers are for spending commitments, being the maximum amounts that can be authorised in any one year. In practice, commitments can cover several years and the expenditures actually occurred in each year are typically a lower amount – for example, in 2020 budget expenditures are €155bn (including spending from previous year’s commitments), less than the €173bn commitment budget.

These numbers may seem pretty large, but with a population of 448 million, the spending proposals are equivalent to an average of just over €30 a month per person over the seven years, together with a one-off stimulus package costing a further €21 a month per person if spread over the same period.

This chart was originally published by ICAEW.