#uk – Martin Wheatcroft

ICAEW chart of the week: the end of year capital rush

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.

Column chart illustrating UK public sector capital expenditure by quarter, comprising three financial years each made up of four quarters: Q1 (Apr-Jun), Q2 (Jul-Sep), Q3 (Oct-Dec), and Q4 (Jan-Mar).

2022/23 £85.3bn: £14.4bn, £18.4bn, £20.2bn, and £32.3bn.
2023/24 £102.7bn: £18.6bn, £22.8bn, £24.2bn and £37.1bn.
2024/25 £109.0bn (forecast): £20.4bn, £23.8bn, £25.8bn and £39.0bn (forecast).

7 Feb 2025. Chart by Martin Wheatcroft FCA.
Sources: ONS, 'Public sector finances, Dec 2024’; OBR, ‘Economic and fiscal outlook, Oct 2024’.

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!

This chart was originally published by ICAEW.

ICAEW chart of the week: Pensioners on the rise

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.

Step chart. Starts with a projected UK population aged 66 or more in 2025 of 12,614,000 (21%), adds 2,677,000 over the next 10 years, then a reduction of 867,000 (7%) from the change in the state retirement age to equal a UK population aged 67 or more of 4,424,000 (+14%) in 2035.

31 Jan 2025. Chart by Martin Wheatcroft FCA. Source: ONS, 'Principal population projection (2022-based), Jan 2025'.

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.

This chart was originally published by ICAEW.

ICAEW chart of the week: Public finances per capita

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.

Column chart showing UK public sector receipts and spending per capita for 2024/25.

Left hand column: Taxes £1,235 per month + Other receipts £150 per month = Receipts per capita £1,385 per month.

Right-hand column: Pensions and welfare £445 per month + Health and social care £370 per month + Education £160 per month + Other public services £410 per month + Interest £150 per month = Spending per capita £1,535 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.

This chart was originally published by ICAEW.

ICAEW chart of the week: Defence spending battle lines

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.

Two column chart with parliamentary funding of £54.1bn on the left and MOD expenditure analysis of £53.9bn.

The left hand column comprises £36.0bn from net expenditure £45.2bn minus depreciation of £9.2bn, pus reconciling items of £2.6bn and capital expenditure of £15.5bn.

The right-hand column consists of £17.2bn 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.

10 Jan 2025. Chart by Martin Wheatcroft FCA.
Source: Ministry of Defence, 'Annual Reporting and Accounts 2023/24'.

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.

Definitely time to watch this space.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK public sector pension liabilities

My chart for ICAEW this week looks at how public sector net pension obligations reduced by £1.2tn from £2.6tn to £1.4tn during the financial year ended 31 March 2023 as a consequence of a sharply rising discount rate.

Step chart on UK public pension liabilities in the Whole of Government Accounts 2022/23. Opening position at 1 April 2022 £2,639bn (£2,539bn unfunded and £100bn funded) + £117bn service costs + £48bn net interest costs - £1,269bn net actuarial gains = £50bn unfunded benefits paid - £70bn other movements = £1,415bn pension liability on 31 Mar 2023 (£1,419bn unfunded scheme liabilities - £4bn funded scheme net pension asset).

13 Dec 2024. Chart by Martin Wheatcroft FCA. Design by Sunday.

My chart of the week for ICAEW is on UK public sector pension liabilities, analysing how the net pension obligations reported in the Whole of Government Accounts 2022/23 reduced from £2,639bn on 1 April 2022 to £1,415bn on 31 March 2023.

The Whole of Government Accounts are prepared in accordance with International Financial Reporting Standards (IFRS), with net pension obligations calculated in line with International Accounting Standard 19 (IAS19): Employee benefits.

The chart starts with opening net pension liabilities on 1 April 2022 of £2,639bn, comprising £2,539bn for unfunded schemes (including the NHS, teachers, civil services, armed forces, police and fire service schemes, among others) and a net liability of £100bn for funded schemes (principally local government schemes, but also some central government entities such as the BBC and the Bank of England, for example). The closing position on 31 March 2023 was £1,415bn, being pension liabilities of £1,419bn for unfunded schemes and a net pension asset of £4bn for funded schemes.

Service costs added £117bn to pension liabilities during 2022/23 and net interest added a further £48bn. These increases were more than offset by £1,269bn in net actuarial gains, £50bn in payments to pensioners in the unfunded pension schemes, and £70bn in other movements.

Service costs principally arise from the additional pension entitlements earned by public sector workers during the year, while net interest comprises the unwinding of the discount on pension liabilities (£40bn for unfunded schemes and £11bn for funded schemes) less investment income on assets in funded schemes (£3bn).

The net actuarial gains of £1,269bn comprises £1,357bn from changes in the assumptions underlying the value of liabilities (£1,218bn on unfunded schemes and £139bn in funded schemes) less £60bn (£59bn on unfunded schemes and £1bn on funded schemes) in experience gains and losses, less a loss of £28bn on investments. The principal assumption changes related to a change in the discount rates used to calculate pension obligations, which for the unfunded schemes increased from a real (i.e. inflation-adjusted) rate of 1.3% on 31 March 2022 to 1.7% on 31 March 2023.

The unfunded scheme liability is reduced for pensions paid on behalf of the schemes by the government. This contrasts with the funded schemes where assets are used to fund settlement of pension liabilities, resulting in no change in the net position. Other movements include £35bn in opening balance restatements relating to the NHS and former Royal Mail pension schemes and £39bn from the failure of 198 local authorities and the Northern Ireland Teachers Superannuation Scheme to report numbers to HM Treasury, less a net £4bn in other movements.

The omission of so many local authorities, and the lack of audit assurance for many others, has led to the first ever audit opinion disclaimer by the Comptroller and Auditor General on the consolidated financial statements for the UK public sector.

Not shown in the chart is the breakdown of the £1,419bn closing balance for unfunded schemes into its constituent schemes: £535bn for NHS workers, £335bn for teachers, £222bn for civil servants, £156bn for the armed forces, £104bn for police, £30bn for pre-privatisation Royal Mail workers, £23bn for fire services, and £14bn for public sector staff in other unfunded schemes. Also not shown is the £304bn of liabilities in local government and other funded pension schemes or the related £308bn in investments in those schemes that result in a net pension fund asset of £4bn on 31 March 2023.

The recognition of a £1.3tn actuarial gain in the statement of comprehensive income and expenditure appears positive for the reported financial position of the nation by contributing to a reduction in overall net liabilities from £3.9tn to £2.4tn. However, it is important to realise that the future obligations to pay pensions to public sector employees haven’t changed – it is how those obligations are converted into current values.

Irrespective of the discount rate used, we as a nation will need to pay out very large amounts of money in public sector pensions.

This chart was originally published by ICAEW.

ICAEW chart of the week: What do we all do?

My chart for ICAEW this week looks at what we all do for a living and how the government wants to move more of us from economically inactive categories into the workforce.

Pie chart breaking down UK population between 29.0m employees (42%), 4.3m self-employed (6%), 1.5m unemployed (2%), 3.0m ill or disabled (4%), 2.7m homemakers and other (4%), 12.3m retired (18%), 13.9m children under 16 (20%), 2.5m students 16 and over (4%).

My chart of the week for ICAEW looks at what we do for a living, according to the latest labour market statistics from the Office for National Statistics (ONS) for the third quarter between July and September, when the estimated population was 69.2m.

According to the ONS, 29m people (42% of the total population) were in employment, 4.3m (6%) were self-employed and 1.5m (2%) were unemployed seeking work. In total this is fractionally just over half of the population (50.3%).

The other (almost) half of the population were not in work. They comprised 3m (4%) not working because of illness or disability, 2.7m (4%) homemakers or not working for other reasons, 12.3m (18%) people in retirement, 13.9m (20%) children under the age of 16, and 2.5m (4%) students aged 16 or over who were not also working.

The 33.3m who were employed or self-employed include 1.5m people aged 65 or more and 1.1m students in full-time education who also work. Around 5.9m work in the public sector. Overall, there are 24.9m people working full-time and 8.4m working part-time, while some 1.2m workers have more than one job.

The 1.5m unemployed include 0.2m students in full-time education who are actively seeking work. Meanwhile, the 12.3m in retirement include 1.1m people who are under the age of 65.

The ONS also reports that 1.9m of those who are economically inactive between the ages of 16 and 64 would like a job, including 0.7m of those who are not working because of illness or disability.

The government is very keen to get as many as possible of the 1.5m people who are unemployed, and the 3.0m not working because of illness or disability, into work. This would benefit the public finances twice over by not only reducing the cost to the exchequer of welfare payments paid out, but also by increasing the amount of tax receipts coming in.

Recent statements from government ministers have suggested that their strategy includes tightening the eligibility criteria for illness and disability benefits, in addition to providing additional support to help people back into the workforce.

The government is also looking at how it can encourage some of the 1.1m retirees below the age of 65 back into work, as well as persuading more of us to work beyond the statutory retirement age of 66.

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation jump

Our chart this week looks at how the jump in annual inflation from 1.7% in September to 2.3% in October was driven by higher energy bills.

Side-by-side step charts comparing the components of inflation for two overlapping periods. Visually each bar is weighted to its contribution to the inflation to the index.

12 months to Sep 2024: core inflation +3.2%, food prices +1.9%, alcohol and tobacco +4.9% and energy prices -16.9% = CPI all items 1.7%.

12 months to Oct 2024: core inflation +3.3%, food prices +1.9%, alcohol and tobacco +5.3% and energy prices -10.1% = CPI all items 2.3%.

Our chart of the week illustrates how the annual rate of consumer price inflation (CPI) has changed between September and October 2024.

In the year to September 2024, core inflation – being CPI excluding the more volatile price rises of food, alcohol and tobacco, and energy – was 3.2%, while food prices were 1.9% higher than a year previously, alcohol and tobacco were 4.9% higher and energy prices were 16.9% lower. On a weighted basis these contributed 2.5%, 0.2%, 0.2% and -1.2% respectively to the overall CPI index.

This contrasts with the year to October 2024, where core inflation was 3.3%, food price inflation was 1.9%, alcohol and tobacco prices were up 5.3%, and energy prices were down 10.1%, contributing 2.6%, 0.2%, 0.2% and -0.7% to the annual rise in the CPI all items index.

In moving to the latest set of statistics, price changes during October 2023 are dropped from the annual rate and those for October 2024 are added. This results in a very different picture for energy prices, as a fall in domestic electricity and gas prices in October 2023 was replaced by an increase in the domestic energy price cap in October 2024. This caused energy prices overall to fall by a smaller amount in the year to October than they did in the year to September.

After weighting the different components of the CPI index, the 0.6 percentage point change in the annual rate of inflation reflected a 0.1 percentage point contribution from core inflation, close to zero from food inflation, 0.015 percentage points from higher alcohol and tobacco prices, and a 0.5 percentage point contribution resulting from a lower annual rate of fall in energy prices.

Despite the slight uptick in the annual core inflation rate in October 2024 to 3.3%, it is still significantly lower than the 5.7% rate it was in October 2023, providing some encouragement to the Bank of England to reduce interest rates still further during 2025.

However, the concern for monetary policymakers before they decide to cut rates again will be the potential upward pressures on inflation from measures in the Autumn Budget 2024. The course they chart will be affected by how these and other economic factors (both domestic and international) play out over the course of the next six months or so.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK international trade

My chart for ICAEW this week is inspired by International Trade Week and looks at where UK imports come from and exports go to, ahead of what might be some major changes in US trade policy when President-elect Trump assumes office on 20 January 2025.

Column chart showing imports and exports to and from the UK in 2023.

Imports: Americas £142bn + Asia-Pacfic £155bn + Europe £504bn + Rest of the world £75bn = £876bn.

Exports: Americas £219bn + Asia-Pacific £142bn + Europe £400bn + Rest of the world £100bn = £861bn.

My chart of the week illustrates how UK imports in 2023 totalled £876bn, £15bn more than total exports of £861bn.

Imports comprise £142bn (16%) from the Americas, £155bn (18%) from Asia-Pacific, £504bn (57%) from European countries, and £75bn (9%) from the rest of the world. Exports comprise £219bn (25%) to the Americas, £142bn (16%) to Asia-Pacific, £400bn (46%) to European countries, and £100bn (12%) to the rest of the world.

Imports can be analysed between £581bn in goods and £295bn in services, while exports can be broken down into £393bn in goods and £468bn in services, meaning the UK had a trade deficit of £188bn in goods and a trade surplus of £173bn in services in 2023.

The UK’s largest overall trade partner is the EU, which makes up most of the UK’s trade with countries in Europe, while its largest individual trade partner is the US. Excluding Germany (the largest country in the EU), the UK’s next largest trade partner is China. Together, imports from these three economies add up to £635bn or 72% of the total, while exports to the US, EU and China equate to £594bn or 69% of the total.

International Trade Week is an opportunity to celebrate the successes of the UK’s importers in sourcing the goods and services that individuals and businesses need and of the UK’s exporters in selling goods and services around the world.

However, this time around all eyes are on the result of the US general election, and what the potential trade policies of the incoming US administration under Donald Trump might mean for the UK. Not only could they result in major changes in how trade is conducted between the UK and the US (17% of our total trade), but also between the UK and the EU (46%), and between the UK and China (7%).

We trade in interesting times.

Major trading partners

Americas

US – £115bn imports (£58bn goods, £57bn services); £187bn exports (£60bn goods, £127bn services)

Canada – £9bn imports (£5bn goods, £4bn services); £16bn exports (£7bn goods, £9bn services)

Brazil – £5bn imports (£4bn goods, £1bn services); £6bn exports (£3bn goods, £3bn services)

Other countries in the Americas – £13bn imports (£7bn goods, £6bn services), £10bn exports (£5bn goods, £5bn services)

Asia-Pacific

China (including Hong Kong) – £69bn imports (£61bn goods, £8bn services); £51bn exports (£32bn goods, £19bn services)

India – £24bn imports (£10bn goods, £14bn services); £16bn exports (£6bn goods, £10bn services)

ASEAN – £22bn imports (£14bn goods, £8bn services); £25bn exports (£12bn goods, £13bn services)

Japan – £14bn imports (£8bn goods, £6bn services); £14bn exports (£6bn goods, £8bn services)

Australia – £6bn imports (£2bn goods, £4bn services); £15bn exports (£5bn goods, £10bn services)

South Korea – £7bn imports (£6bn goods, £1bn services); £10bn exports (£6bn goods, £4bn services)

Other countries in Asia-Pacific – £13bn imports (£8bn goods, £5bn services); £11bn exports (£4bn goods, £7bn services)

Europe

EU – £451bn imports (£318bn goods, £133bn services); £356bn exports (£186bn goods, £170bn services)

EFTA – £50bn imports (£37bn goods, £13bn service); £40bn exports (£17bn goods, £23bn services)

Other European countries – £3bn imports (£1bn goods, £2bn services); £4bn exports (£3bn goods, £1bn services)

Rest of the world

Turkey – £16bn imports (£11bn goods, £5bn services); £10bn exports (£7bn goods, £3bn services)

UAE – £8bn imports (£3bn goods, £5bn services); £13bn exports (£7bn goods, £6bn services)

Saudi Arabia – £4bn imports (£3bn goods, £1bn services); £13bn exports (£5bn goods, £8bn services)

South Africa – £6bn imports (£4bn goods, £2bn services); £4bn exports (£2bn goods, £2bn services)

UK dependencies – £10bn imports (£1bn goods, £9bn services); £21bn exports (£1bn goods, £20bn services)

Everywhere else – £31bn imports (£20bn goods, £11bn services), £39bn (£18bn goods, £21bn services)

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.

ICAEW chart of the week: Autumn Budget 2024

My chart for ICAEW this week looks at how the fiscal baseline inherited by the Chancellor has changed as a consequence of the Autumn Budget, with higher capital investment driving up borrowing needed to fund the deficit over the next five years.

Column chart showing Spring Budget fiscal deficit and the Autumn Budget change over the forecast period.

2024/25: Spring Budget forecast £87bn + Autumn Budget change £40bn = £127bn (4.5% of GDP).

2025/26: £78bn + £28bn = £106bn (3.6% of GDP).

2026/27: £69bn + £20bn = £89bn (2.9% of GDP).

2027/28: £51bn + £21bn = £72bn (2.3% of GDP).

2028/29: £39bn + £33bn = £72bn (2.2% of GDP).

2029/30: £35bn + £36bn = £71bn (2.1% of GDP).

Our chart of the week sets out the changes in fiscal projections calculated by the Office for Budget Responsibility (OBR) in its October 2024 economic and fiscal outlook compared with the numbers at the time of the Spring Budget seven months ago.

These form a revised baseline for the public finances that will form the basis of the Chancellor’s spending and investment plans over the rest of the Parliament.

As our chart highlights, the fiscal deficit – the shortfall between tax and other receipts and public spending calculated in accordance with statistical standards – was forecast to amount to £87bn in 2024/25, but this has increased by £40bn to £127bn, or 4.5% of GDP.

The projections for the following five years were also revised upwards between 2025/26 and 2029/30 have increased from £78bn, £69bn, £51bn, £39bn and £35bn by £28bn, £20bn, £21bn, £33bn and £36bn to result in a revised profile of £106bn (3.6% of GDP), £89bn (2.9% of GDP), £72bn (2.3% of GDP), £72bn (2.2% of GDP) and £71bn (2.1%).

This contrasts with the previous government’s plan to bring down the deficit in relation to the size of the economy to 1.2% of GDP by 2028/29.

Perhaps the biggest surprise was the £40bn upward revision to the budgeted deficit of £87bn for the current financial year ending in March 2025. This reflects a combination of £14bn in higher debt interest and £6bn in other forecast revisions, £23bn in higher spending (most of which is the £22bn ‘black hole’ identified by the incoming government over the summer) and £2bn in additional capital investment, less £1bn in tax measures and £4bn from the indirect economic effect of policy decisions.

In later years, the principal driver of the increases in the deficit is higher capital investment as the Chancellor replaced the previous government’s plan to cut public sector net investment by almost a third over the next five years (from 2.5% to 1.7% of GDP) to a profile that sees net investment increase to 2.7% of GDP in 2025/26 and 2026/27 before returning to 2.5% of GDP in 2029/30.

The changes in the deficit between 2025/26 and 2029/30 can be summarised as follows:

2025/26: £28bn increase = £18bn higher capital investment + £10bn net other changes (£42bn additional spending – £25bn tax rises – £6bn indirect effects of decisions – £1bn forecast changes).

2026/27: £20bn = £23bn capital – £3bn net other changes (£44bn – £35bn – £5bn – £7bn).

2027/28: £21bn = £26bn capital – £5bn net other changes (£47bn – £40bn – £2bn – £10bn)

2028/29: £33bn = £27bn capital + £6bn net other changes (£49bn – £40bn + £2bn – £5bn)

2029/30: £36bn = £25bn capital + £11bn net other changes (£47bn – £42bn + £6bn – not published).

The increases in taxation, spending and capital investment won’t avoid the need for difficult choices in the Spending Review next year as departmental budgets will remain tight.