Our chart this week takes a look at how UK public sector net debt has increased from £1,816bn to £2,814bn over the past five years – an increase just £2bn short of £1tn.
According to the provisional public sector finance numbers for March 2025 released by the Office for National Statistics (ONS) on 23 April, public sector net debt was £2,814bn on 31 March 2025. This comprised gross debt of £3,198bn, less cash and other liquid financial assets of £384bn.
Our chart this week illustrates how the net amount the nation owes to its creditors has changed over the last five years, starting with net debt of £1,816bn on 31 March 2020. Debt repayments of £541bn were financed by replacement borrowing of £541bn, followed by borrowing of £847bn to fund deficits over the five years (£315bn in 2020/21, £122bn in 2021/22, £127bn in 2022/23, £131bn in 2023/24 and a provisional £152bn in 2024/25) and borrowing for other reasons of £151bn (principally to fund government lending and working capital requirements). The result is an increase of £998bn to reach net debt of £2,814bn on 31 March 2025.
At just short of a trillion pounds, this is the largest amount ever borrowed by the UK government in a five-year period, with only the £0.8tn (£799bn) borrowed over the five years to March 2013 following the financial crisis coming close – when net debt went from £567bn on 31 March 2008 to £1,366bn on 31 March 2013.
The pandemic and the subsequent energy and cost-of-living crises are, of course, the main drivers behind the need to borrow so much in such a short time, but the worry is that annual borrowing levels are not coming down as quickly as might have been hoped (or budgeted).
Either way, the consequences of building up so much debt will be with us for a long time to come, with debt interest squeezing the amounts available to pay for public services and the tax burden approaching an all-time high, just as demographic change is reducing the proportion of working-age adults, compared with those in retirement.
Of course, as the latest numbers are provisional and the historical ones are often subject to revision, it would only take a couple of relatively small adjustments to the starting or closing debt balances to turn this from just under a trillion pounds to just over a trillion.
Perhaps a reminder that while a couple of billion pounds is a huge sum of money to you or me (or even to many billionaires), in terms of the UK public finances it is not much more than a rounding error.
Our chart looks ahead to next week’s Spring Statement by looking back at the fiscal forecast prepared by the OBR last October.
There has been some confusion on both the title of next week’s Spring Forecast and whether it will or will not constitute a formal ‘fiscal event’.
Traditionally, each Chancellor of the Exchequer stands up in Parliament twice a year to announce policy decisions on tax, spending and borrowing, and to set out the latest economic and fiscal forecasts, which since 2010 have been prepared by the independent Office for Budget Responsibility (OBR). One of these fiscal events is a ‘Budget’, which involves requesting parliamentary approval of the annual budget for the upcoming financial year, while the alternate has historically been described as a ‘Statement’.
Chancellor Rachel Reeves set out an ambition on taking office for there to be only one fiscal event a year – an Autumn Budget – mostly in the hope of creating a more stable tax system by reducing the frequency of tax changes, but also to provide a more stable budgeting framework for the public sector. However, she is still legally required to present fiscal forecasts to Parliament twice a year, and so HM Treasury’s decision to relabel the second event as a Spring Forecast was originally intended to emphasise that there wouldn’t be any major tax or spending changes between Budgets.
Unfortunately for the Chancellor, weak economic data – and what that implies for the profile of public spending of tax receipts and public spending over the next five years – mean that she has been unable to achieve her hope of a policy-decision-free Spring Forecast on this, her first attempt.
Instead, the government has brought forward from later in the year its anticipated reform of disability benefits to ensure the associated cost savings are reflected in the new OBR forecast, while there are also rumours that she may, for the same reason, revise down the total amount of public spending allocated to this summer’s three-year Spending Review.
The tight fiscal situation is illustrated by our chart this week, which sets out how the current budget balance was expected to turn from deficits of £61bn, £55bn, £26bn and £5bn between 2023/24 and 2026/27 to surpluses of £11bn, £9bn and £10bn between 2027/28 and 2029/30.
Our chart also shows how public sector net investment of £70bn, £72bn, £80bn, £83bn, £83bn, £81bn and £81bn between 2023/24 and 2029/30 added to the current budget balance was expected to result in fiscal deficits of £131bn, £127bn, £106bn, £88bn, £72bn, £72bn and £71bn between 2023/24 and 2029/30 respectively.
The Chancellor’s primary fiscal rule is to achieve a current budget surplus by 2029/30, but the £10bn headroom against this target represents just 0.9% of projected receipts of £1,440bn and 0.7% of projected total managed expenditure of £1,510bn in 2029/30. A deteriorating economic outlook is believed to have seen this headroom evaporate in the working projections presented by the OBR to the Chancellor as part of the Spring Forecast process – at least before taking account of any offsetting decisions by the Chancellor.
Similarly, the Chancellor may also need to take action to ensure that her secondary fiscal rule – for the debt-to-GDP ratio to fall between March 2029 and March 2030 – is met. This test (not shown in the chart) also had a relatively low headroom of £16bn in the Autumn Budget forecast and further changes to government plans may also be required to stay within it.
Many of the references in the media and elsewhere to the Spring Statement next week are likely to be from people who didn’t see the announcement from HM Treasury about the name change. We did get the memo, but on reflection we think sticking with the former title is going to be more appropriate on this occasion.
Talk of a ‘bonfire of quangos’ prompted our chart this week to look at how the number of central government public bodies has grown significantly over the past decade.
The prime minister’s recent pledge to tackle the “flabby” state has brought into focus the growth over the past decade in the number of what used to be called quangos (quasi-autonomous non-governmental organisations) but now tend to be described as arms-length public bodies.
Our chart this week is taken from the list of government departments, agencies and public bodies on gov.uk, showing how the number of central government public bodies has grown from 474 in January 2015, to 555 in January 2020 and to 603 in January 2025.
These numbers exclude the three devolved administrations, local authorities, schools, hospitals, police and fire services etc, and so are only a subset of the estimated 10,000 public bodies that exist in the UK. Scottish and Welsh government departments and many Scottish and Welsh public bodies are excluded from the list, but Northern Ireland public bodies are included, presumably because they are run from London during periods when the Northern Ireland executive is suspended.
The number of government departments increased from 24 in 2015 to 25 in 2020 with the creation of the Department for Exiting the European Union (DExEU) and the Department for International Trade (DIT) offset by the merger of the energy and business departments. This fell back to 24 in 2025 following the abolition of DExEU, the merger of the Department for International Development with the Foreign Office, and the merger of DIT with the business department (a reduction of three) offset by the recreation of a separate Department for Energy Security and Net Zero and the establishment of a new Department for Science, Innovation and Technology (an increase of two).
Non-ministerial departments are 20 arms-length bodies that have budgets voted on in Parliament, including the Supreme Court, HM Revenue & Customs, National Savings & Investments, Crown Prosecution Service, National Crime Agency, Serious Fraud Office, Government Legal Department, Government Actuary’s Department, Food Standards Agency, Forestry Commission, HM Land Registry, the National Archives and the UK Statistics Authority, as well as assorted regulators comprising the Charity Commission, Competition and Markets Authority, the Office for Rail and Road, Ofgem, Ofqual, Ofsted and the Water Services Regulation Authority. There were 22 in 2015, but Ordnance Survey was reclassified to be a public corporation, while UK Trade & Investment became part of DIT when it was formed and is now part of the Department for Business and Trade.
The number of agencies and public bodies increased from 346 in January 2015 to 408 in 2020 and 424 in January 2025. These are arms-length public bodies generally funded from government departmental budgets, ranging from the Advisory Committee on the Microbiological Safety of Food, Arts Council England, the British Business Bank, the Civil Nuclear Police Authority and Companies House to the Imperial War Museum, Law Commission, Maritime and Coastguard Agency, National Lottery Heritage Fund, Office for Students, Peak District National Parks Authority, Pubs Code Adjudicator, Rail Accident Investigation Branch, Royal Mint, Sport England, Student Loans Company, UK Atomic Energy Authority, UK Space Agency, and Youth Justice Board for England and Wales, to name but a few.
The increase between 2015 and 2020 was exaggerated by the inclusion of Northern Ireland public bodies and some reclassifications of existing bodies to the public sector, such as Network Rail and the Financial Reporting Council. However, after the cull undertaken by the coalition government between 2010 and 2015, there was a steady pace of new public bodies created, ranging from the Birmingham Organising Committee for the 2022 Commonwealth Games, College of Policing, Commission for Countering Extremism, Independent Anti-Slavery Commissioner to the Oil and Gas Authority (now North Sea Transition Authority), Office of Tax Simplification and the UK Holocaust Memorial Foundation.
Despite the abolition of the Office of Tax Simplification, the number of quangos has continued to rise since 2020, with many more created over the past five years. These have included the Advanced Research and Invention Agency, Electricity Settlements Company, Flood Re, Great British Energy, Incubator for Artificial Intelligence, Infected Blood Compensation Authority, Regulatory Horizons Council and Queen Elizabeth Memorial Committee, among many others.
Our chart also illustrates how the number of public corporations has increased from 12 in January 2015 and 2020 to 19 in January 2025, despite the reclassification of BBC World Service and S4 as agencies. These are self-funded public bodies or publicly owned businesses owned by the state, which in January 2025 comprised the Architects Registration Board, BBC, Channel 4, Civil Aviation Authority, Crossrail International, DfT Operator, Historic Royal Palaces, London and Continental Railways, National Energy System Operator, NEST, National Physical Laboratory, Office for Nuclear Regulation, Oil and Pipelines Agency, Ordnance Survey, Pension Protection Fund, Post Office, Royal Parks, Sheffield Forgemasters and the UK National Nuclear Laboratory.
The remaining category is what are described as high-profile groups, which grew from 70 identified bodies in January 2015 to 90 in January 2020 and 116 in January 2025. These are mostly organisations inside government departments, such as the Defence Infrastructure Organisation and National Space Operations Centre within the Ministry of Defence, HM Passport Office and Immigration Enforcement within the Home Office, and the Office for Product Safety and Standards and Office of Trade Sanctions Implementation within the Department for Business and Trade. This group also includes professions within government, such as the government economic and statistical services, policy, legal, planning, property, security, tax, social research, and science and engineering professions, and the commercial, finance and operational research functions, for example.
The planned bonfire of quangos is likely to find that it is a lot more difficult than it sounds. While it is possible to scrap, merge or reform many of these organisations – whether they meet the definition of a quango or not – almost all of these organisations exist for a reason.
With President Trump planning to visit Fort Knox to check up on the US government’s gold reserves, my chart for ICAEW this week looks at just how much gold is owned by governments around the world.
According to the latest statistics from the World Gold Council, sourced principally from the International Monetary Fund (IMF), governments and international financial institutions around the world own 35,864 tonnes of gold. Much of this gold sits in the Bank of England, Fort Knox and in central bank vaults around the world.
At a price of around £74 per gram, the total value of ‘government gold’ adds up to somewhere in the region of £2.7trn. This is estimated to be around one-sixth of the total above-ground stock of gold in the world.
While the US is the largest individual holder of official gold reserves with 8,133 tonnes of gold worth around £600bn, the 27 countries of the EU and the European Central Bank collectively own a total of 11,719 tonnes of gold worth approximately £870bn. This includes Germany with 3,352 tonnes, Italy 2,452 tonnes, France 2,437 tonnes, Netherlands 615 tonnes, the European Central Bank 507 tonnes, Poland 448 tonnes, Portugal 383 tonnes, Spain 282 tonnes, Austria 280 tonnes, Belgium 227 tonnes, Sweden 126 tonnes, Greece 115 tonnes, Hungary 110 tonnes, Romania 104 tonnes and other EU member states with 281 tonnes.
The next biggest holder of gold is the IMF with 2,814 tonnes (worth around £210bn), followed by Russia with 2,336 tonnes (£175bn), China 2,280 tonnes (£170bn), Switzerland 1,040 tonnes (£77bn), India 876 tonnes (£65bn), Japan 846 tonnes (£63bn), Türkiye 615 tonnes (£46bn), Taiwan 424 tonnes (£31bn), Uzbekistan 383 tonnes (£28bn), Saudi Arabia 323 tonnes (£24bn), the UK 310 tonnes (£23bn), Lebanon 287 tonnes (£21bn) and Kazakhstan 284 tonnes (£21bn).
The total for other countries adds up to 3,194 tonnes worth, or around £235bn or so, including Thailand 235 tonnes, Singapore 220 tonnes, Algeria 174 tonnes, Iraq 163 tonnes, Venezuela 161 tonnes, Libya 147 tonnes, Brazil 130 tonnes, Philippines 130 tonnes, Egypt 127 tonnes, South Africa 125 tonnes, Mexico 120 tonnes, Qatar 111 tonnes, South Korea 104 tonnes and the Bank for International Settlements 102 tonnes.
While the level of official gold holdings is partly driven by the economic size of the countries concerned, it also depends on their reserve strategies, with US, German, French and Italian gold holdings making up around 75%, 74%, 72% and 71% of their official reserves respectively, in contrast with 6%, 9%, 11% and 15% for China, Switzerland, India and the UK, for example.
President Trump’s plan to visit Fort Knox to personally inspect his nation’s gold holdings reflects one of the benefits of investing in a physical commodity such as gold – you can count gold bars, weigh them and check their purity, as well as admire its shiny quality. He may have a less satisfying experience in verifying any future strategic crypto-currency reserve, where entries in a ledger are somewhat more ephemeral.
My chart for ICAEW this week looks at the assessed contributions of member states to the United Nations Regular Budget for 2025.
The United Nations is funded through a mix of assessed contributions from member states, voluntary contributions from both member states and others, and revenue generated from operations.
In 2023, total revenue for all UN entities comprised $67.6bn, of which $13.8bn was from assessed contributions, $46.8bn from voluntary contributions ($41.0bn earmarked and $5.8bn non-earmarked), and $7.0bn in revenue from operations.
Of the $13.8bn in assessed contributions from member states, $3.3bn in 2023 was for the core activities of the UN itself and our chart this week illustrates the assessed contribution percentages for 2025 for the $3.4bn UN Regular Budget set for 2025.
This highlights how European Union (EU) and European Free Trade Area (EFTA) nations have been assessed to pay 24.0% of the core budget in 2025, followed by the USA (22.0%), China (20.0%), Commonwealth nations (11.6%), Japan and South Korea (9.3%), Latin American nations (4.4%), Middle East nations (4.3%), Russia (2.1%), and the rest of the world (2.3%).
EU and EFTA national contributions are led by Germany (5.7%), France (3.9%), Italy (2.8%), Spain (1.9%), Netherlands (1.3%), Switzerland (1.0%), Poland (0.8%), Sweden (0.8%), Belgium (0.8%), Norway (0.7%), Austria (0.6%), Denmark (0.5%) and Ireland (0.5%). The remaining 18 EU and EFTA members (and three microstates) are expected to contribute a further 2.7% in 2025.
Of the Commonwealth nations, the UK (4.0%), Canada (2.5%), Australia (2.0%), India (1.1%) and Singapore (0.5%) contributed the most, with the remaining 49 members not including Cyprus and Malta (who are included in the EU in this chart) contributing a further 1.5%.
Japan (6.9%) and Korea (2.4%) are assessed to contribute 9.3% between them, while Latin American nations are down to contribute 4.4%, led by Brazil (1.4%), Mexico (1.1%) and Argentina (0.5%) with 1.4% coming from the rest.
Middle East countries are expected to contribute 4.3% between them, with Saudi Arabia (1.2%), Türkiye (0.7%), Israel (0.6%) and UAE (0.6%) being the largest. Another 11 Middle Eastern nations are down to contribute a further 1.2%.
Russia has been assessed to contribute 2.1%, while countries in the rest of the world are expected to put in a further 2.3%, of which Indonesia (0.6%) is the only one to contribute more than half a percent of the total assessment, with the remaining 68 member states collectively contributing a further 1.7% in total.
The assessed contributions for UN agencies and other activities vary from the percentages shown in the chart as they depend on which countries participate in each agency or activity and several other factors. For example, the US has been assessed to pay 26.2% of the UN peacekeeping budget in 2025 (higher than their 22% regular budget contribution), although the US is expected to pay only 25% because of a cap of 25% set by Congress. The UK and France are expected to pay 4.7% and 4.6% respectively (higher than their 4.0% and 3.9% regular budget contributions), while China has been assessed to pay 18.7% (lower than its 20.0% regular budget contribution).
Another example is the World Trade Organisation (WTO) where the US and China are assessed to contribute 11.4% and 11.2% respectively and most other nations contribute a larger share.
One big question for the UN in 2025 will be the extent to which the new US administration reduces the amount it pays to the UN compared with previous years. The total paid by the US was $13bn in 2023, comprising $3.2bn in assessed contributions and $9.7bn in voluntary contributions.
In theory, if the US leaves a UN agency, such as already announced departures from the World Health Organisation and the UN Human Rights Council, then the assessed contributions for the remaining members can be increased to compensate.
The White House has also announced that it is reviewing its membership of the UN Educational, Scientific and Cultural Organisation and that it will withhold a proportionate share of its regular budget contribution that goes towards the UN Relief and Works Agency for Palestinian Refugees in the Near East.
A bigger question will be the extent to which the US cuts its voluntary contributions to UN programmes. A substantial proportion of these voluntary contributions have traditionally come through the US Agency for International Development, where payments have recently been suspended.
My chart of the week for ICAEW highlights the big rush in UK public sector capital expenditure in the final quarter of each financial year, prompting us to ask why March is the best time of the year to build new assets.
Over the years, the process for delivering capital expenditure in the public sector in the UK has had a pretty bad reputation. The anecdote goes that the first quarter is spent arguing about budgets, in the second everyone goes on holiday, and it is only in the third quarter that programmes finally get up and running, before everything stops for the Christmas break. The final quarter is then a mad rush to spend the remaining budget before the end of the financial year.
Unfortunately, there does appear to be some support for this conjecture when we take a look at the actual numbers.
According to the public sector finance release for December 2024, together with the latest Office for Budget Responsibility forecast for the current financial year to March 2025, public sector gross capital formation (in effect capital expenditure) is lowest in the first quarter, picks up in the second (despite the summer holidays), rises slightly again in the fourth (despite the Christmas break) and then explodes in the fourth quarter of each financial year (despite winter).
Our chart shows capital expenditure in 2022/23 of £85.3bn comprised £14.4bn in Q1 (Apr-Jun), £18.4bn in Q2 (Jul-Sep), £20.2bn in Q3 (Oct-Dec) and £32.3bn in Q4 (Jan-Mar). A similar pattern occurs in 2023/24 when a total £102.7bn of capex was incurred, with £18.6bn in Q1, £22.8bn in Q2, £24.2bn in Q3, and £37.1bn in Q4. Meanwhile in the current 2024/25 financial year, £20.4bn was incurred in Q1, £23.8bn in Q2, and £25.8bn in Q3, with a forecast of £39.0bn in Q4 to reach a forecast total of £109.0bn.
In practice the fourth quarter jump is principally seen in the final month of the financial year, as seen in 2023/24 when fourth quarter capital expenditure of £37.1bn consisted of £9.6bn in January 2024 (£1.0bn more than the monthly average capital expenditure of £8.6bn that financial year), £10.2bn in February 2024 (£1.6bn more than the monthly average), and £17.3bn in March 2024 (£8.7bn more than the monthly average).
This pattern is a stubbornly consistent feature of the public finances in the UK, even after numerous attempts within government to improve capital budgeting and delivery processes. For example, departments are able to carry over some of their capital budgets to future years, which in theory should reduce the incentive to spend every last penny of their allocation in-year. The new spending review process coming into force this summer should also help by setting out a four-year capital budget for 2026/27 to 2029/30, providing much greater forward certainty for investment programmes and (in theory) reducing the concern of future budgets disappearing if the current year budget is not spent in full.
Of course, it is possible that our concerns about the quality of government’s investment delivery process are not fully justified. There could after all be some very good practical reasons as to why March is the best time of the year for carrying out public capital works!
My chart for ICAEW this week highlights how the number of pensioners in the UK is expected to increase by 14% over the next 10 years. This will have major implications for the public finances.
The Office for National Statistics (ONS) published its latest population projections for the UK on 28 January 2025.
Extrapolated from the 2021 Census in England, Wales and Northern Ireland and the 2022 Census in Scotland, the ONS’s principal projection is for the UK population to increase by 5% over the next decade from a projected 69,868,000 in June 2025 to 73,426,000 in June 2035. This is on the basis of 132,000 more deaths than births in total over the next 10 years (6,979,000 versus 6,847,000) and net inward migration of 369,000 a year on average.
Our chart highlights how the number of pensioners is expected to increase by 14% over the next 10 years, from a projected 12,614,000 this summer to 14,424,000 in 2035, despite an increase in the state retirement age from 66 to 67.
The main driver of this increase is an additional 2,677,000 people aged 66 or more, reflecting 8,522,000 people passing the age of 66 over the 10 years to June 2035, plus 28,000 from net inward migration (119,000 in and 91,000 out), less 5,873,000 deaths
This 21% increase is partially offset by a 7% reduction for the 867,000 66-year-olds who will still be waiting for their state pension in June 2035 as a result of the planned rise in the state retirement age from 66 to 67 between 2026 and 2028.
Over the same period the ONS is projecting a 7% fall in the number of children from 12,272,000 in June 2025 to 11,434,000 in June 2035, and a 6% increase in the size of the working age population from 44,982,000 to 47,569,000. The latter would have been a 4% increase if not for the statutory increase in the state pension age to 67.
The ONS stresses that its national population projections are not forecasts and do not attempt to predict potential changes in international migration in particular. It also notes that demographic assumptions for future fertility and mortality are based on observed demographic trends, which is no guarantee that these trends might not change in the future.
Despite those caveats, the projected increase in the number of pensioners is one of the more likely areas of the projections to turn into reality. This is because almost all of those future pensioners are alive today and already living in the country, while mortality rates tend to change gradually over time.
A much more significant factor relates to the ONS’s long-term assumption for net inward migration of 340,000. While this is unlikely to affect the anticipated number of pensioners in a decade’s time, it will have a significant impact on the projected ratio between the number of pensioners and those of working age.
Either way, the projected rise in the number of pensioners compared with the size of the working-age population over the coming decade will have major implications for the public finances.
Tax receipts will fall proportionately as retirees leave the workforce faster than new workers join. State pension payments will increase, even before taking account of the ratchet effect of the pension triple-lock on the amount payable to each pensioner. Health care and adult social care costs will rise substantially given how skewed these costs are to older generations. And pension credit, housing benefit and other welfare benefits that go to poorer pensioners are also likely to increase.
Successive governments, including the current administration, have worked on the basis that they should be able to afford the higher costs of many more people living for longer in retirement through a combination of gradual rises in the state pension age (long hoped for but not delivered), higher levels of economic growth, and cuts in other areas of public spending such as the defence budget.
With the number of pensioners increasing much faster than the government can raise the state pension age (given the decade or more advance notice that needs to be given), relatively low levels of economic growth even in more optimistic scenarios, calls for an increase in the defence budget and significant cost pressures affecting many other public services, the big question will be the extent to which taxes will have to go up even further over the next 10 years if the promises made by successive governments over the last century are to be kept.
My chart for ICAEW this week divides some very big numbers for the public finances by an estimated 69.2m people living in the UK to highlight how UK public spending is now in excess of £1,500 per person per month.
According to the Autumn Budget 2024, the UK public sector expects to bring in £1,149bn and spend £1,276bn in the financial year ended 31 March 2025 (2024/25). At more than a trillion pounds a year in each case, these are very big numbers that can be difficult to comprehend.
My chart of the week attempts to make these numbers more understandable by averaging them over an estimated UK population of 69.2m for the current financial year and dividing them by 12 to arrive at per person per month equivalents (rounded to the nearest £5).
On this basis, total receipts are expected to average £1,385 per month for each person living in the UK in 2024/25, comprising £1,235 a month from tax receipts (£1,025bn in total) and £150 a month in other receipts (£124bn).
Not shown in the chart is the approximately £940 per person per month on average – just over two-thirds of total receipts – that comes from the top five taxes: income tax £375 per month, VAT £245 per month, employer national insurance £135 per month, corporation tax £120 per month, and employee national insurance £65 per month.
Public spending is expected to average £1,535 per person per month in 2024/25, comprising approximately £445 per month on pensions and welfare, £370 per month on health and social care, £160 per month on education, £410 per month on other public services, and £150 per month on debt interest, based on forecast total spending in 2024/25 of £370bn, £307bn, £134bn, £340bn, and £125bn respectively.
Spending on welfare
Welfare spending includes (but is not limited to) approximately £170 per person per month to cover the cost of paying the state pension, around £105 per month to pay for universal credit (including housing benefit), and in the order of £75 per month to fund disability and illness benefits.
Per capita spending on health and social care comprises close to £290 per person per month on the NHS, £55 on social care and £25 on public health, health research and other health-related spending.
Education costs each of us an average of £160 per month, of which approximately £115 per month pays for schools, £35 funds university and higher education (including just over £10 for student loans that are not expected to be repaid) and around £10 per month goes on further education, training and other.
The £410 per month cost of other public services includes in the region of £85 per month on defence and security, approximately £75 per month on roads and railways, £65 on industry and agriculture, nearly £60 per month on public order and safety, £15 per month on dealing with waste, and around £10 per month on international development and aid. This leaves approximately £100 per month to pay for all the other services that central and local government provide, including 11p per person per month for the Royal Family and palaces.
These numbers are averages and of course the amounts individuals pay in taxes and receive either in pensions and welfare benefits or in public services will vary significantly. For example, while health and social care spend is £370 per month when spread over the whole population, average spending on teenagers and those in their 70s are estimated to be significantly different from each other at £130 per month and £700 per month respectively.
Forecast per capita taxes and other receipts of £1,385 per month fall short of planned public spending of £1,535 per month to give rise to an expected deficit of approximately £150 per month funded by borrowing, being £127bn in total in 2024/25, divided by the estimated population of 69.2m. As a consequence, public debt now exceeds £2.8tn, equivalent to just under £41,000 for each person living in the UK, or somewhere in the region of £98,000 per household.
Navigating the public finances can be difficult at the best of times, but it is often helpful to translate the huge numbers you hear on the news into per capita equivalents to make sense of them. £1bn when spread across the UK population works at being equivalent to just over £1.20 per month.
My chart for ICAEW this week takes a dive into the £53.9bn Ministry of Defence expenditure in 2023/24 ahead of what is likely to be a charged debate about defence spending in the coming year.
My chart of the week illustrates how parliamentary funding for the Ministry of Defence (MoD) amounted to £54.1bn for the year ended 31 March 2024 while summarising the MoD’s expenditure analysis of £53.9bn between £17.9bn for the capital programme, £12.2bn for infrastructure and equipment support and inventory, £2.6bn for Defence Nuclear, £3.9bn for arms-length bodies and other spending, £14.7bn for military and civilian personnel and admin, and £2.6bn for military operations.
The parliamentary funding of £54.1bn was used to pay for £36.0bn of day-to-day spending (being net expenditure reported in the accounts of £45.2bn less non-cash depreciation and impairments of £9.2bn) and £15.5bn in capital expenditure, after net reconciling items of £2.6bn (the largest being to exclude an exceptional £2.7bn gain from changes in discount rates).
The £17.9bn incurred on MoD’s capital programme during 2023/24 is higher than the total for capital expenditure because it includes research and development and capital grants that are expensed in the revenue and expenditure statement. Most of the amount spent relates to building or upgrading military equipment for the armed forces, ranging from Astute Class nuclear-powered and Dreadnought Class nuclear-powered ballistic missile submarines and Type 31 frigates for the Royal Navy, remotely piloted Protector surveillance and strike aircraft and radar upgrades to the Typhoon fighter for the Royal Air Force, through to Ajax armoured fighting vehicles and Chinook heavy-lift helicopters for the Army. It also includes investment in digital technology, back-office automation and investments in new military accommodation. (Existing military accommodation has been brought back in house since the end of the financial year).
The £12.2bn incurred in non-capital spending on infrastructure and equipment and inventory comprised £5.0bn to maintain and support infrastructure, £5.7bn to maintain and support equipment, and £1.5bn on inventory. A further £2.6bn was spent by the Defence Nuclear organisation to support the UK’s strategic nuclear deterrent capability, while £3.9bn went on arms-length bodies and other spending, including £1.3bn on the Defence Equipment and Support (DE&S) organisation that manages defence procurement, £0.2bn for the Defence Science and Technology Laboratory, the Submarine Delivery Agency and other arms-length bodies, £0.7bn for war pensions, and £1.7bn in other costs.
Personnel and admin costs of £14.7bn comprised £11.0bn for 151,905 full-time equivalent service personnel, £1.8bn for 70,881 full-time equivalent civilian and other staff, and £1.9bn in administration costs. This excludes £5.1bn in combined net expenditure for the Armed Forces Pension Scheme and Armed Forces Compensation Scheme that is reported separately from the MoD’s accounts.
Incremental spending on military operations amounted to £2.6bn in 2023/24, of which £2.2bn (£1.2bn capital and £1.0bn resource) went to support Ukraine and just under £0.2bn was spent on operations in the Middle East, while £0.2bn or so was incurred on other operations elsewhere in the world and on conflict prevention, stabilisation, security and peacekeeping activities.
The net expenditure of £53.9bn reported by MoD in 2023/24 was equivalent to just under 2.0% of GDP, being the majority of the approximately 2.3% of GDP the UK says it currently spends on defence and security for NATO purposes. The difference mainly relates to the cost of armed forces pensions not included in the MoD accounts, spending on the UK’s security services, and spending on counter-terrorism activities.
The UK government has already set out an ‘aspiration’ for UK defence and security spending to reach 2.5% of GDP by the end of the decade, but the return of President-elect Donald Trump to the White House is likely to result in pressure on NATO members to meet an even higher target.
During his first term, President Trump floated the idea of a 4% NATO target, which would have required the UK to spend the equivalent of an additional £47bn of spending based on GDP in 2023/24 and more than £50bn a year extra in future years. Even a more modest target of 3% of GDP would require an extra £19bn (or £20bn in future years) to be found.
Finding such large amounts of money would pose a huge challenge for any government at the best of times, but the current very fragile state of the public finances means the stretch is even greater now – adding to the headaches that are no doubt being inflicted on the Chancellor as she seeks to balance the books over the remainder of the decade.
My chart for ICAEW this week heads down under for some warmer weather and to take a look at the Australian federal government balance sheet in its recently published consolidated financial statements for the year ended 30 June 2024.
The Commonwealth of Australia consolidated financial statements for the year ended 30 June 2024 were published on 12 December, bringing together the results and financial position of 199 audited financial statements for entities within the federal government system, public financial corporations (such as the Reserve Bank of Australia and Export Finance Australia), and public non-financial corporations (including Australia Post and Snowy Hydro for example). However, this does not include state and territory governments or local authorities in each state and territory.
As my chart this week illustrates, the balance sheet reports negative net worth of $568bn (21% of GDP or £284bn at the current exchange rate of approximately A$1 = £0.50), comprising assets of A$989bn (37% of GDP or £495bn) less liabilities of A$1,557bn (58% of GDP or £779bn).
Assets consisted of investments and cash of A$527bn (£264bn), receivables and other financial assets of A$162bn (£81bn) and non-financial assets of A$300bn (£150bn), while liabilities comprised debt of A$1,044bn (£522bn), payables and provisions of A$205bn (£103bn), and superannuation liabilities of A$308bn (£154bn).
Investments and cash of A$527bn consisted of investments, loans and placements of A$417bn, equity investments of A$102bn, and cash of A$8bn. Investments include $225bn invested in the Australia Future Fund, a sovereign wealth fund established in 2006 to strengthen the Australian government’s long-term financial position, together with $A$44bn in a series of other sovereign wealth funds established over the last decade.
Receivables and other financial assets of A$162bn comprised tax receivables and accrued taxation of A$59bn, other receivables and accrued revenue of A$26bn, student loans of A$54bn, and other advances of A$23bn.
Non-financial assets of A$300bn comprised A$89bn of military equipment, A$88bn of other plant, equipment and infrastructure, A$74bn in land and buildings, A$17bn in intangibles, $A13bn in heritage and cultural assets, and A$19bn of inventories and other non-financial assets.
Debt of A$1,044bn consisted of interest-bearing liabilities of A$943bn (A$611bn in government securities, A$227bn in central bank deposit liabilities, A$32bn for leases, and A$73bn in loans and other interest-bearing liabilities) and A$101bn in Australian currency in circulation.
Payables and provisions of A$205bn included A$90bn in provisions, A$63bn in non-pension employee liabilities, A$26bn in supplier payables and A$26bn in other payables.
The net pension obligation of A$308bn includes A$276bn for partially funded defined benefit schemes (obligations of $323bn less scheme assets of $A47bn) and A$32bn for one unfunded scheme. These schemes are now all closed to new members and so the liability is gradually reducing over time.
Not shown in the chart is the operating statement, which reported revenue of A$728bn (27.2% of GDP or £364bn), expenses of A$718bn (26.9% of GDP or £359bn) and net capital investment of A$12bn (0.5% of GDP or £6bn) to result in an operating surplus of A$10bn (0.4% of GDP or £5bn) and a fiscal deficit (on an accounting basis) of A$2bn (0.1% of GDP or £1bn).
Although the reported net worth in the financial statements is negative, Australia’s public finances are in a much stronger position than for many other countries. Australia’s general government net debt (including 13% for state and territory governments) was 32% of GDP on 30 June 2024, in contrast with the equivalent of 91% of GDP for the UK on the same date. This also doesn’t take account of the UK’s much larger public sector pension liabilities that are not included within net debt.
As a result there are more reasons than just the warmer weather to be thinking about enjoying a Christmas barbie on the beach on the other side of the world at this time of the year.
This is the last chart of the week for 2024 and so we would like to wish our readers all the best for the holiday season and for a healthy and prosperous 2025. We return in January.
