#economy – Martin Wheatcroft

Government deficit hits £100bn in the first half of the financial year

Revisions and corrections help reduce the budget overrun to £7bn for the six months to September 2025, but the outlook remains bleak.

The UK government deficit hit £100bn in the six months to September 2025, according to the latest Office for National Statistics’ (ONS) monthly public sector finances release for September 2025, published on 21 October 2025.

The report also revealed a provisional shortfall between receipts and public spending of £20bn last month. The deficit for the month was £1bn higher than the previous year, in line with the budget. The cumulative deficit was £12bn higher than the first half of 2024/25, and £7bn more than budgeted.

Month of September 2025

Provisional receipts and total public spending for September – £95bn and £115bn respectively – were each 8% more than the previous year.

Current spending included depreciation of £108bn, comparable to the £108bn monthly average in the first five months of the financial year. Net investment was £7bn, higher than the £4bn monthly average investment between April and August 2025.

Excluding net investment, the current budget deficit for the month was £13bn – £2bn more than in the same month last year, £1bn more than budgeted. This was offset by a £1bn underspend on net investment.

Six months to September 2025

The provisional deficit for the six months to September 2025 was £12bn (14%) more than in the same six months last year. This was £7bn higher than budget, which can be analysed as a £13bn budget overrun on the current budget deficit (current receipts less current spending), less a £6bn underspend on net investment.

Table 1 highlights the changes in year-to-date receipts, up 7% overall on last year’s equivalents. These increases were mostly driven by factors such as inflation and fiscal drag from frozen tax allowances. The 20% increase in national insurance revenues reflects the increase in employers’ national insurance.

The 9% increase in current spending over the year has been driven by public sector pay rises, higher supplier costs, and the uprating of welfare benefits.

Net investment of £28bn in the first six months of 2025/26 was £1bn, or 4% higher than the same period last year. Capital expenditure of £46bn was up by £2bn and capital transfers (capital grants, research and development funding, and student loan write-offs) of £18bn were up by £1bn, offset by depreciation of £36bn, up by £2bn.

Table 1 Summary receipts and spending

6 months to Sep	2025/26 £bn	2024/25 £bn	Change %
Income VAT	145	133	+9%
VAT	104	100	+4%
National insurance	98	82	+20%
Corporation tax	52	48	+8%
Other taxes	115	112	+3%
Other receipts	63	62	+2%
Current receipts	577	537	+7%

Public services	(363)	(334)	+9%
Welfare	(155)	(146	+6%
Subsidies	(18)	(17)	+6%
Debt interest	(77)	(67)	+15%
Depreciation	(36)	(34)	+6%
Current spending	(649)	(598)	+9%

Current deficit	(72)	(61)	+18%

Net investment	(28)	(27)	+4%

Deficit	(100)	(88)	+14%

Budget for the rest of the financial year

The deficit is budgeted to be £118bn for the full year ending 31 March 2026, comprising £93bn in the first half of the year to September 2025 and £25bn in the second half of the year.

Borrowing and debt

Table 2 summarises government borrowing in the first six months of the financial year, taking public sector net debt to a provisional £2,916bn on 30 September 2025. This comprised £100bn in public sector net borrowing (PSNB) to fund the deficit and a further £6bn to fund government lending and working capital requirements.

The table also illustrates how the debt-to-GDP ratio increased by 1.6 percentage points, from a revised 93.7% of GDP at the start of the financial year to 95.3% on 30 September 2025, with incremental borrowing of £106bn, equivalent to 3.5% of GDP. It was partly offset by 1.9 percentage points due to inflation and economic growth adding to GDP.

Table 2 Public sector net debt and net debt/GDP

6 months to Sep	2025/26 £bn	2024/25 £bn
PSNB	100	88
Other borrowing	6	(14)
Net change	106	74
Opening net debt	2,810	2,686
Closing net debt	2,916	2,760

PSNB/GDP	3.3%	3.1%
Other/GDP	0.2%	(0.5%)
Inflating away	(1.9%)	(2.7%)
Net change	1.6%	(0.1%)
Opening net debt/GDP	93.7%	94.4%
Closing net debt/GDP	95.3%	94.3%

Public sector net debt on 30 September 2025 of £2,916bn comprised gross debt of £3,368bn less cash and other liquid financial assets of £452bn.

Public sector net financial liabilities were £2,565bn, comprising the net debt plus other financial liabilities of £715bn, less illiquid financial assets of £1,066bn. Public sector negative net worth was £908bn – net financial liabilities of £2,565bn less non-financial assets of £1,657bn.

Revisions

Caution is needed with ONS figures, which are repeatedly revised as estimates are refined, and gaps in the underlying data are filled. This includes local government, where numbers are updated in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

This month, the ONS revised down the previously reported deficit for the five months to August 2025 by £4bn, including a £2bn error correction for understated VAT receipts. The ONS also increased the reported deficit for the previous financial year (2024/25) by £4bn to £150bn to incorporate estimates of local government actual expenditure.

More significantly, the ONS revised its methodology for calculating economic activity, resulting in an increase in GDP of 1%. Doing so causes historical percentages for deficit and debt as a proportion of GDP to be revised downwards. This includes a 1.1 percentage reduction in public sector net debt/GDP at the start of the financial year on 1 April 2025, from the previously reported 94.8% to the 93.7% shown in Table 2.

Martin Wheatcroft, external advisor on public finances to ICAEW, said that public finances were broadly as expected, with the £20bn deficit for the month in line with budget.

“Borrowing to fund the deficit was a fraction under £100bn in the six months to September, the second-highest half-year deficit on record after the pandemic year. This was despite a narrowing of the year-to-date budget overrun to £7bn, as a consequence of error corrections and other revisions to previous months. In addition, statistical revisions to the size of the economy resulted in around a percentage point fall in the ratio of public sector net debt to GDP.”

Tepid economic growth and high debt interest costs will continue to weigh on prospects for the rest of the financial year, he added. “The revisions do very little to alter the bleak outlook for the public finances that is driving the need for a significant fiscal correction in the Autumn Budget 2025.”

This article was written by Martin Wheatcroft for ICAEW and 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.

Public finances turn ugly just as Chancellor needs good news

Weaker receipts than expected combined with prior month corrections resulted in a £12bn year-to-date budget overrun in the August monthly public finances.

The monthly public sector finances release for August 2025 published by the Office for National Statistics (ONS) on 19 September reported a provisional shortfall between receipts and total public spending of £18bn in August 2025 and £84bn for the five months then ended. These were £6bn and £12bn over budget respectively and £4bn and £16bn higher than in the same periods in 2024.

Martin Wheatcroft, external adviser on public finances to ICAEW, says: “This month’s public finance numbers took a turn for the worse as not only did weaker than expected receipts drive a £6bn budget overrun in August, but revisions to prior months added a further £6bn to the deficit to turn a broadly neutral position a month ago into a £12bn year-to-date budget overrun for the first five months of the 2025/26 financial year.

“These numbers are far from helpful to a Chancellor in desperate need of some good financial news, adding to the prospect of even higher tax rises in the Autumn Budget 2025 than previously feared.”

Month of August 2025

Receipts of £93bn in August 2025 were £5bn or 5% higher than the same month last year, while total public spending was £111bn, £8bn or 8% more than in August 2024. The latter can be analysed between current spending including depreciation of £107bn, slightly below the £108bn monthly average in the first four months of the financial year, and net investment of £4bn, in line with the monthly average incurred between April and July 2025.

Excluding net investment, the current budget deficit for the month of £14bn represented a £4bn deterioration over the current budget deficit of £10bn in the same month last year, highlighting how receipts have failed to keep pace with increases in current spending.

The overall £18bn fiscal deficit for the month was £6bn over budget and £4bn more than in August 2024.

Five months to August 2025

Table 1 highlights how year-to-date receipts of £477bn were up 6% on last year’s equivalents. This included income tax receipts, up 8% from a combination of inflation and fiscal drag from frozen tax allowances, and national insurance receipts, up 18% as a consequence of the increase in employer national insurance from April 2025. VAT receipts were flat year-on-year, in effect a 3% to 4% fall after taking account of consumer price inflation, highlighting the weak economic conditions facing the UK.

Meanwhile, the 8% increase over last year in current spending including depreciation to £539bn in the first five months to August 2025 has principally been driven by public sector pay rises, higher supplier costs, and the uprating of welfare benefits.

This included a £7bn or 12% increase in debt interest to £64bn, which comprised a £6bn increase in indexation on inflation-linked debt as inflation resurged and a £1bn increase in interest on variable and fixed-interest debt. The latter reflects a higher level of debt compared with a year ago being partially offset by a lower Bank of England base rate.

The resulting current budget deficit of £62bn to August 2025 was 29% higher than the £48bn for the same five months last year, a major concern given that the government’s plan was to reduce the cumulative current budget deficit to £47bn at this point.

Net investment of £22bn in the first five months of 2025/26 was £2bn or 10% higher than the same period last year with capital expenditure of £39bn up by £3bn and capital transfers (capital grants, research and development funding, and student loan write-offs) of £13bn up by £1bn, offset by depreciation of £30bn up by £2bn.

The overall provisional deficit for the five months to August 2025 of £84bn is £16bn or 24% more than in the same five months last year and £12bn higher than budget. The latter can be analysed as a £15bn budget overrun on current receipts less current spending for the year-to-date, less a £3bn saving on net investment.

Table 1: Summary receipts and spending

5 months to Aug	2025/26 £bn	2024/25 £bn	Change %
Income tax	122	113	+8%
VAT	84	84	–
National insurance	80	68	+18%
Corporation tax	43	40	+7%
Other taxes	96	93	+3%
Other receipts	52	51	+2%
Current receipts	477	449	+6%

Public services	(301)	(276)	+9%
Welfare	(129)	(122)	+6%
Subsidies	(15)	(14)	+7%
Debt interest	(64)	(57)	+12%
Depreciation	(30)	(28)	+7%
Current spending	(539)	(497)	+8%

Current deficit	(62)	(48)	+29%

Net investment	(22)	(20)	+10%

Deficit	(84)	(68)	+24%

Borrowing and debt

Table 2 summarises how the government borrowed £99bn in the first five months of the financial year to take public sector net debt to a provisional £2,909bn on 31 August 2025. This comprised £84bn in public sector net borrowing (PSNB) to fund the deficit and a further £15bn to fund government lending and working capital requirements.

The table also illustrates how the debt to GDP ratio increased by 1.6 percentage points from 94.8% of GDP at the start of the financial year to 96.4% on 31 August 2025, with incremental borrowing of £99bn, equivalent to 3.3% of GDP, being partly offset by 1.7 percentage points from the ‘inflating away’ effect of inflation and economic growth adding to GDP, the denominator in the net debt to GDP ratio.

Table 2: Public sector net debt and net debt/GDP

5 months to Aug	2025/26 £bn	2024/25 £bn
PSNB	84	68
Other borrowing	15	7
Net change	99	75
Opening net debt	2,810	2,686
Closing net debt	2,909	2,761

*PSNB/GDP*	*2.8%*	*2.4%*
Other/GDP	0.5%	0.2%
Inflating away	(1.7%)	(2.3%)
*Net change*	*1.6%*	*0.3%*
Opening net debt/GDP	94.8%	95.6%
*Closing net debt/GDP*	*96.4%*	*95.9%*

Public sector net debt on 31 August 2025 of £2,909bn comprised gross debt of £3,339bn less cash and other liquid financial assets of £430bn.

Public sector net financial liabilities were £2,550bn, comprising net debt of £2,909bn plus other financial liabilities of £715bn less illiquid financial assets of £1,074bn.

Public sector negative net worth was £893bn, being net financial liabilities of £2,550bn less non-financial assets of £1,657bn.

Revisions

Caution is needed with respect to the numbers published by the ONS, which are repeatedly revised as estimates are refined and gaps in the underlying data are filled. This includes local government, where the numbers are only updated in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

This month was no different, with the ONS revising the previously reported deficit for the four months to July 2025 up by £6bn, as well as updating prior year numbers for the annual results of the Bank of England and several other public bodies as well as other typical annual updates such as revised student loan calculations.

More significantly, the ONS revised reported deficits back to 1998 for methodology and classification changes and back to 2011 for local government outturn numbers that had not previously been incorporated. The reported deficits for 2020/21 and 2021/22 were decreased by £3bn and £2bn to £311bn and £120bn respectively, 2022/23 remained unchanged at £127bn, 2023/24 was increased by £2bn to £134bn, and 2024/25 was reduced by £2bn to £146bn.

This article was written by Martin Wheatcroft for ICAEW and 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: Global GDP

My chart for ICAEW this week looks at the relationship between population and GDP around the world.

A three column chart each adding up to 100% with the central bar showing percentages of the global population, the left-hand bar showing percentages of market GDP. and the right-hand bar showing percentage of power-purchasing-parity (PPP) GDP. The bars are linked with lines to emphasise the relative proportions.

US & Canada: Market GDP 29% - Population 5% - PPP GDP 16%.
Europe: Market GDP 23% - Population 7% - PPP GDP 18%.
China: Market GDP 17% - Population 17% - PPP GDP 20%.
Rest of the world: Market GDP 24% - Population 28% - PPP GDP 30%.
South Asia & China: Market GDP 7% - Population 43% - PPP GDP 16%.

27 Jun 2025. Chart by Martin Wheatcroft. Design by Sunday. Source: IMF, 'World Economic Outlook Database, Apr 2025'.

According to the latest World Economic Outlook Database published by the International Monetary Fund in April 2025, the 387m people that live in the US and Canada, some 5% of the global population of 8.1bn, are together expected to generate about 29% of global economic activity as measured by GDP converted at market exchange rates in 2025.

The US – the largest economy in the world – is expected to generate 27% with 4.3% of the global population, while Canada with 0.5% of the world’s people represents 2% of the global economy.

My chart this week also shows how the US and Canada together constitute 16% of the global economy using GDP converted on a Purchasing-Power-Parity (PPP) basis that adjusts for the relative cost of living between countries. The US is the world’s second largest economy on this basis with 15% of total economic output, while Canada represents 1.3% of the total.

Europe’s 602m people are 7% of the global population (excluding Russia, but including Georgia) and are expected to generate around 23% of global economic output at market exchange rates in 2025 or around 18% on a PPP basis.

This includes the 452m people or 5.6% of the total living in the EU that generate 18% of global output or 14% on a PPP basis, the second largest economy on a market exchange rate basis and the third largest after adjusting for purchasing power. Germany with 1% population generates 4.3% and 3% of market GDP and PPP GDP respectively, followed by France (0.8% generating 2.9% and 2.2%), Italy (0.7% generating 2.2% and 1.8%), Spain (0.6% generating 1.6% and 1.4%), the Netherlands (0.2% generating 1.2% and 0.7%) and Poland (0.5% generating 0.9% and 1%).

Outside the EU, the 70m people in the UK, 0.9% of the world’s total, generate 3.4% of global economic activity on a market exchange rate basis and 2.2% on a purchasing power basis.

China’s 1.4bn people constitute 17% of the world’s population and generate 17% of market GDP, in effect the average level of global economic activity on a per capita basis at current exchange rates. However, on a cost-of-living adjusted basis, they are the world’s biggest economy at 20% of PPP GDP and above average on a per capita basis.

The chart groups the rest of East Asia, South East Asia, Oceania, the Middle East, Russia, Central Asia, Latin America and the Caribbean into a ‘rest of the world’ category with 2.3bn people or 28% of the world’s population. They generate 24% of the global economy on a market exchange rate basis and 30% on a purchasing power basis.

This category includes the 10 ASEAN countries in South East Asia that together make up 8.5% of the world’s population, 3.6% of market GDP and 6.4% of PPP GDP led by Indonesia (3.5%, 1.2% and 1.4%). Others include Japan (1.5% population, 3.6% market GDP and 3.3% PPP GDP), Russia (1.5%, 2.3% and 3.5%), Türkiye (1.3%, 1.1% and 1.8%), Mexico (1.6%, 1.6% and 1.6%), South Korea (0.6%, 1.6% and 1.6%), Australia (0.3%, 1.5% and 1%), Brazil (2.6%, 1.0% and 2.4%), Taiwan POC (0.3%, 1% and 0.8%) and Saudi Arabia (0.4%, 0.8% and 1%).

The final category is South Asia and Africa, which together include many of the poorest countries on Earth, with 43% of the global population but just 7% of the global economy based on market exchange rates and 16% on a cost-of-living adjusted basis.

South Asia’s 2bn people are 24.3% of the world’s population, generating 4.4% of market GDP and 10.3% of PPP GDP. This includes India’s 1.5bn people (17.9% of the global population generating 3.6% and 8.5% respectively), the world’s fifth largest national economy at market exchange rates behind the US, China, Germany and Japan, and the third largest on a PPP basis behind China and the US. It also includes Pakistan (3% of the world’s people generating 0.3% and 0.8% of economic activity) and Bangladesh (2.1% generating 0.4% and 0.9%).

Africa’s 1.5bn people constitute 18.3% of the world’s total, generating just 2.7% of market GDP and only 5.3% of PPP GDP. This includes South Africa (0.8%, 0.4% and 0.5%), Egypt (1.3%, 0.3% and 1.1%), Nigeria (2.9%, 0.2% and 0.8%), Ethiopia (1.4%, 0.1% and 0.2%) and the Democratic Republic of the Congo (1.3%, 0.1% and 0.1%).

The chart illustrates how economic activity, both before and after adjusting for purchasing power, is weighted towards the US and Europe, while South Asia and Africa have a long way to go to become as prosperous.

While this may seem a stiff mountain to climb economically, China’s transformation over the last 30 years provides an example of what is possible, especially as ageing populations in many developed countries reduce their ability to grow as quickly as those countries with much younger demographics such as in South Asia and Africa.

As they say, watch this space.

This chart was originally published by ICAEW.

ICAEW chart of the week: Quarterly GDP over three years

Our chart this week looks at how quarterly GDP has risen from £610.3bn in the first quarter of 2022 to £738.6bn in the first quarter of 2025.

A step chart showing the change in quarterly GDP over the last three years.

Left hand column: Quarterly GDP in 2022 of £610.3bn.

Step 1: Inflation (GDP deflator) +£108.0bn or +17.7%.

Step 4: Economic growth +£20.3bn or +2.8%.

Right hand column: Quarterly GDP in 2025 Q1 of £738.6bn.

Shaded box in the middle of the chart for steps 2 and 3 which are a breakdown of step 4.

Step 2: Population growth +£23.7bn or +3.3bn.

Step 3: Per capita economic growth -£3.4bn or -0.5%.

30 May 2025. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: ONS, 'GDP first quarterly estimate, UK: Jan-Mar 2025'.

According to the Office for National Statistics (ONS), GDP was £738.6bn in the quarter from January to March 2025, £128.3bn or 21.0% higher than the £610.3bn reported for the same quarter three years ago.

Our chart of the week illustrates how quarterly GDP was £108.0bn or +17.7% higher in the first quarter of 2025 compared with the same quarter in 2022 as a result of inflation (using the GDP deflator measure) while economic growth contributed a further £20.3bn or +2.8%.

The chart also breaks down economic growth over the past three years between a contribution from there being more people of £23.7bn or +3.3% and a decline in economic activity per person of £3.4bn or -0.5%.

Not shown on the chart are the changes by year, which comprised annual inflation of +8.2%, +4.1% and +4.5% and annual economic growth of +0.8%, +0.7% and +1.3% in 2022/23, 2023/24 and 2024/25 respectively, with the latter split between annual population growth of +1.2%, +1.1% and +1.0%, and annual per capita economic growth of -0.4%, -0.4% and +0.3%.

Also not shown in the chart is economic growth over the last four quarters, which was +0.5%, +0.0%, +0.1% and +0.7% between the first and second quarters of 2024, the second and third quarters, the third and fourth quarters, and the fourth quarter of 2024 and the first quarter of 2025 respectively. These comprised quarterly population growth of +0.3%, +0.2%, +0.2% and +0.2% and quarterly per capita economic growth of +0.2%, -0.2%, -0.1% and +0.5%.

Lower levels of net inward migration are expected to reduce the rate of population growth over the next three years to closer to 0.5% a year, which means that growing the economy faster than inflation will depend on our ability to improve productivity and hence increase real economic activity per person.

In theory, that should be eminently possible given how per capita economic growth averaged 2.4% per year for the 50 years before the financial crisis. Unfortunately, with per capita growth averaging just 0.6% a year over the past decade, productivity will need to increase significantly if we are to turn the situation around over the coming decade.

The good news is that a 21% increase in GDP means tax receipts should be that much higher. The bad news is that public spending has been going up, too.

This chart was originally published by ICAEW.

ICAEW chart of the week: Economic outlook

My chart for ICAEW this week looks at how the OBR is forecasting growth in economic activity per person of 1.1% a year between 2024 and 2030. While better than the average of 0.3% a year achieved over the past 16 years, it is significantly lower than the 2.3% a year seen in the 50 years before that.

Line chart showing GDP per capita between Q1 2008 and Q1 2030, with the forecast period from Q1 2024 onwards shaded grey.

GDP per capita - blue line falling from 2008 to 2010 then rising unevenly to 2019 falling hugely in 2020 then rising again to just below 2019 in 2021 before falling to 2024 and then a projected rise from 2024 onwards.

Trend lines overlaid as follows:
Q1 1958 to Q1 2008: +2.3% a year (not shown in the chart).
Q1 2008 to Q1 2024: +0,3% a year (purple).
Q1 2009 to Q3 2019: +1.3% a year (yellow).
Q1 2024 to Q1 2030: +1.1% a year (dotted black line).

My chart of the week is on the economic projections calculated by the Office for Budget Responsibility (OBR) in its October 2024 economic and fiscal outlook that accompanied the Autumn Budget 2024.

This assumption is a key driver for the OBR’s fiscal projections for tax receipts between now and March 2030, and hence how much the government will need to borrow to finance the current deficit and its investment plans.

The chart starts in March 2008 at the height of the financial crisis, illustrating how economic activity per person after adjusting for inflation fell significantly until September 2009. Real GDP per capita then grew at an average rate of 1.3% a year until September 2019, before the rollercoaster ride that saw the economy collapse during the pandemic, recover and then slide back during the energy crisis. A small uptick in the first quarter of 2024 is hardly noticeable.

The result was that real GDP per capita was only 4.4% higher in March 2024 than it was in March 2008, the equivalent of 0.3% a year on average over 16 years.

The OBR has been more optimistic for the current financial year up until March 2030, predicting per capita economic growth of 1.1% a year on average between the first quarter of 2024 and the first quarter of 2030.

This is of course much better than the 0.3% average increase over the past 16 years, but it is below the 1.3% growth in real GDP per capita during the ‘austerity years’ following the financial crisis and is substantially below the 2.3% average increase over the 50 years prior to the financial crisis.

From a ‘glass half empty’ perspective, this emphasises just how poorly the UK economy has performed since the financial crisis and the challenges the incoming government has in trying to improve productivity and economic output, even without the risk of an economic shock, events that appear to occur every decade or so.

However, those with a ‘glass half full’ temperament will be more cheerful. After all, there does appear to be substantial space for economic growth to improve from the OBR’s less-than-sparkling predictions, even without returning to the heady days of the pre-financial crisis long-term trend.

This chart was originally published by ICAEW.