Each month I write an article for ICAEW on the monthly public sector finance release. Here are my most recent articles:
Public sector net debt hits £3tn ahead of budget
Rising inflation and budget overruns provide a difficult backdrop for John Healey as he prepares for his first fiscal event. The Chancellor is under pressure to provide more support for rising energy bills, but the challenges to balance spending are mounting.
Budget overrun widens as public finances disappoint
The triple whammy of geopolitical uncertainty, persistent inflation and rising gilt yields are squeezing the public purse as the Chancellor prepares for his first budget.
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UK net debt in touching distance of £3.0tn
Latest data confirms that the UK’s public finances remain weak, despite taxpayers facing the highest tax burden since the 1960s. The Chancellor faces significant challenges if he is to increase public spending, says ICAEW.
Our chart this week looks at how the five-year fiscal forecasts have consistently proved too optimistic in recent years, something to bear in mind as the budget approaches.
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Chart of the week: disposable income
Our chart this week looks at how income is distributed across UK households with a median equivalised household disposable income of £3,265 per month and an equivalised average of £3,800 per month.
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Chart of the week: UK productivity remeasured
Our chart this week looks at how the ONS is changing how it calculates labour productivity – one of the most important factors driving economic growth.
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Chart of the week: public sector workforce
Our chart this week looks at how one third of the 6.2m public sector workforce work for the NHS while 9% work for the Civil Service.
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Chart of the week: OBR long-term fiscal forecast
Our chart this week shows how alternative scenarios go off the chart in the OBR’s latest long-term fiscal projections.
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Chart of the week: long-term interest rates
Our chart this week highlights how long-term borrowing costs have changed over the past year in Japan, Germany, France, the US and the UK.
My chart for ICAEW this week is on how people in the UK still live in broadly the same type of households as they did 25 years ago, despite the population growing by 18% over that time.
My chart of the week for ICAEW is on the composition of households in the UK in 2025 and how they compare with the start of the century.
According to the Office for National Statistics (ONS), the total population of the UK in 2000 was 58.9m people, increasing by 10.6m or 18% to 69.5m people in 2025. The ONS also analyses the different types of family groupings for the 58.1m people living in households in 2000 and 68.5m in 2025.
As the chart illustrates, the 34.9m people living as part of a family with children or in multi-family households in 2000 rose by just over 17% to 41.0m in 2025, while the 14.4m people living as part of couples with no children in 2000 increased by just under 17% to 16.8m in 2025. The 8.8m people living alone or sharing with unrelated adults in 2000 increased by 22% to 10.7m while the number of people living elsewhere (generally in community establishments) rose by 0.8m people in 2000 to 1.0m in 2025.
The 34.9m and 41.0m people living as part of a family with children or in multi-family houses in 2000 and 2025 respectively can be analysed between 17.0m and 20.2m living in households headed by a couple with one or two dependent children, 5.5m and 5.0m headed by couples with three or more dependent children, 5.2m and 6.3m headed by couples with non-dependent children only, 6.3m and 8.2m in families headed by lone parents, and 0.9m and 1.3m in multi-family households.
The 8.8m and 10.7m people living alone or sharing in 2000 and 2025 comprise 7.0m and 8.6m living alone and 1.8m and 2.1m sharing with unrelated adults.
The ONS does not give an analysis of the 0.8m and 1.0m living elsewhere in 2000 and 2025, but data from the 2021 census for England and Wales suggests that approaching half live in educational accommodation (student halls and boarding schools) and around a third live in care homes, with the balance in prisons, on military bases, in temporary accommodation, in hospitals, and within religious establishments among other types of accommodation.
Analysing the changes
As a proportion of the total, there has been a 0.4 percentage point decline in the proportion of people living as part of a family with children from 59.4% to 59.0% over the last 25 years and a 0.3 percentage point decrease in the proportion living in couples without children from 24.4% to 24.1%. Meanwhile, the proportion living alone or sharing increased by 0.5 percentage points from 14.9% to 15.4% and the proportion living elsewhere increased by 0.2 percentage points from 1.3% to 1.5%.
Within these categories there were some bigger demographic shifts, reflecting a falling birth rate and people living longer, diverging from the 18% increase in the size of the overall population over 25 years. These include a 9% drop in the number of people living in couple households with three or more dependent children, from 5.5m in 2000 to 5.0m in 2025; a 30% increase in the number of people over the age of 65 living alone, from 3.3m in 2025 to 4.3m in 2025; and a 30% increase in the number of lone parent families, from 6.3m to 8.2m, with the latter driven by a 77% increase in the number of lone-parent families with non-dependent children only from 1.6m to 2.8m.
So, while the overall picture hasn’t changed that dramatically, there is a lot going on under the surface.
My chart this week for ICAEW is on how GDP for the UK reached £3.0tn for the first time in 2025. This is a 58% increase over the course of a decade, mostly driven by a combination of inflation and a rising population, resulting in a relatively small amount of per capita economic growth.
My chart of the week for ICAEW is on gross domestic product (GDP), the principal measure used by statisticians and economists to assess the size of the economy.
The chart shows how nominal GDP (GDP at market prices in current values) was £1.9tn in 2015, rising to £2.0tn in 2016, £2.1tn in 2017, £2.2tn in 2018 and then £2.3tn in 2019. Nominal GDP fell to £2.1tn in 2020 (the first year of the pandemic) and then rose to £2.3tn in 2021, £2.6tn in 2022, £2.8tn in 2023, £2.9tn in 2024 and then £3.0tn in 2025.
This is a cumulative increase of 58% over 10 years (or 4.7% a year on average), based on nominal GDP of £1,928bn in 2015 and £3,040bn in 2025.
The chart also shows the increase is much less dramatic using GDP adjusted for inflation (GDP at market values on a chained volume basis or ‘real GDP’). Recalculated into 2025 values, GDP adjusted for inflation was £2.7tn in 2015, £2.9tn in 2019, £2.4tn in 2020 and just under £3.0tn in 2022.
As ever with economic statistics these numbers are all subject to revision as the ONS obtains new or updated data and, every so often, revises its methodology.
Analysing the increase
The 58% increase in nominal GDP over the 10 years to 2025 can be analysed as a cumulative 38% increase from inflation (using the GDP deflator ‘all economy’ measure of inflation) and cumulative economic growth of 14%, with the latter being further analysed into a cumulative 7% increase in the size of the population, and a cumulative 7% increase in average economic activity per person.
This is equivalent to a 4.7% per year average annual increase in nominal GDP over the decade, comprising 3.3% per year in average annual inflation and 1.3% per year in economic growth. The latter comprises a 0.7% per year annual rise in population and a 0.7% increase in average per capita economic activity.
Economic growth has been particularly weak over the past three years in particular, with a cumulative increase of 17.8% in nominal GDP comprising cumulative inflation of 14.6% and a cumulative increase of 2.8% in GDP adjusted for inflation (from £2,958bn in 2022 adjusted to 2025 prices to £3,040bn in 2025).
As the population is estimated to have increased by 2.7% between 2022 and 2025, per capita economic activity over the same period has in effect been flat over the last three years.
Unfortunately, the outlook for the economy is far from rosy given recent international developments and there is now a risk that nominal GDP could fall back below £3.0tn in 2026, despite what is likely to be a higher rate of inflation than previously anticipated.
This week’s chart for ICAEW illustrates how a £205bn surplus on trade in services was offset by a £243bn deficit on trade in goods to result in a net trade deficit of £38bn in 2025 – or £16bn if trade in precious metals is excluded.
My chart this week for ICAEW is on the principal components of the UK’s £38bn trade deficit in the 2025 calendar year.
The chart starts with a £205bn surplus on trade in services (comprising a £546bn cash inflow from services exports less a £346bn cash outflow to pay for services imports) followed by a £221bn deficit on trade in goods excluding precious metals (comprising £382bn generated from goods exports less £603bn to pay for goods imports), and a £22bn deficit on trade in precious metals (comprising £2bn from exports less £24bn on imports).
Together these result in an overall trade deficit of £38bn, of which £16bn is a deficit on trade in goods and services excluding precious metals and £22bn relates to precious metals.
This is equivalent to a net trade deficit of 1.3% of GDP, comprising a surplus on trade in services of 6.7% of GDP (17.9% from exports – 11.2% on imports) less a deficit on trade in goods excluding precious metals of 7.3% of GDP (12.6% from exports – 19.9% on imports) and a deficit on trade in precious metals of 0.7% of GDP (0.1% from exports – 0.8% on imports).
The ONS publishes trade statistics that exclude precious metals because a large proportion of the value of this trade are sales and purchases of gold between UK and international holders that are really financial flows, often without any physical movement of the gold concerned. Not only can the volume and value of such transactions be quite volatile, but the trade deficit excluding precious metals of £16bn in 2025 is probably more representative of trade flows in that year than the overall trade deficit of £38bn.
The balance of payments
Not shown in the chart are the other components of the current account deficit of £74bn in 2025 and a capital account deficit of £5bn.
The former comprised a primary income or ‘earnings’ deficit of £19bn (being £417bn investment income coming to the UK and £2bn foreign compensation of UK-based employees less £435bn investment income going abroad and £3bn compensation of foreign employees) and a secondary income deficit or ‘net transfers’ of £17bn (£1bn UK government receipts £1bn and £30bn remittances and other inward transfers less £12bn UK government payments abroad and £36bn remittances and other outward transfers) in addition to the trade deficit of £38bn. The latter consisted of £2bn from international sales of non-produced non-financial assets less £7bn in purchases.
The chart also doesn’t show the £79bn surplus in 2025 on the other side of the balance of payments, being an £86bn surplus on financial transactions (£678bn in financial investments in the UK less £592bn in outbound financial investments) less £7bn in statistical errors and omissions.
The trade deficit over time
The trade deficits excluding precious metals of £17bn in 2024 and £16bn in 2025 were a little lower than the £24bn average over the last quarter of a century and were less than the net £19bn average over the previous four years that were distorted by the pandemic and the energy crisis (trade surpluses excluding precious metals of £14bn and £7bn in 2020 and 2021 followed by deficits of £50bn and £47bn in 2022 and 2023).
Whether you think the trade deficit is good or bad depends on your perspective, with some worried about the net cash outflows that result from payments for imports exceeding receipts from exports. Others points to the net positive inflows of goods and services that are coming into the UK in exchange for the money that we spend.
Either way, what we sell abroad and what we buy from overseas are important not only to UK businesses that trade internationally but also to all of us living in the UK.
My first chart of the financial year starting 1 April 2026 for ICAEW looks at the government’s £1.4tn budget for 2026/27.
My chart fir ICAEW this week is on the public sector budget for the 2026/27 financial year which began on 1 April 2026, showing how there is expected to be a shortfall of £116bn between anticipated receipts of £1,304bn and planned spending of £1,419bn.
This is equivalent to a deficit of 3.6% of GDP, calculated as receipts of 41.2% of GDP less total managed expenditure of 44.8% of GDP.
The chart highlights how the top 10 taxes are expected to generate £1,050bn (81% of total receipts), with all other taxes contributing £121bn (9%) and other receipts generating £133bn (10%).
The top 10 taxes comprise: income tax which generates £360bn, VAT (£220bn), employer national insurance (£155bn), corporation tax (£102bn), employee and self-employed national insurance (£57bn), council tax (£54bn), business rates (£37bn), fuel duties (£24bn), capital gains tax (£21bn) and property transaction taxes (stamp duty in England) generating £20bn.
The remaining £121bn of tax receipts comprises £84bn from the next 10 largest taxes: environmental duties (£16bn), alcohol duties (£13bn), vehicle excise duty (£10bn), inheritance tax (£9bn), insurance premium tax (£9bn), tobacco duties (£7bn), air passenger duty (£5bn), stamp duty on shares (£5bn), customs duties (£5bn) and the apprenticeship levy (£5bn), and £37bn from all other taxes and duties.
Other receipts comprise £87bn from operating surpluses (including social housing rents and the profits of public corporations), £43bn in interest and dividends (on investments and cash balances), and £3bn other receipts.
On the spending side, the chart illustrates how the £749bn budgeted for health and welfare is more than half of the total (approximately 53%), while education spending is budgeted to be £151bn (11%), public services outside of health, social care and education amount to £388bn (27%) and interest is forecast to be £131bn (9%).
Health and welfare spending comprises £401bn on welfare (including the state pension), £294bn on health (principally the NHS), and social care provision of £54bn. Budgeted spending on public services outside of health, social care and education include defence and security of around £70bn, transport £69bn, public order and safety £62bn, industry, agriculture and employment £56bn, and housing and environment £51bn, together with £80bn across the hundreds of other public services provided by central and local government.
The planned borrowing to fund the deficit of £116bn, the difference between receipts and total managed expenditure, excludes £15bn in other borrowing to fund government lending activities and working capital movements, with public sector net debt scheduled to rise above £3tn during the coming financial year.
The problem for the Chancellor – and for all of us – is that the actual numbers for 2026/27 could be significantly worse from the budgeted amounts presented in our chart. Not only is she already under significant pressure to increase defence spending and alleviate student loans (amongst many other spending challenges), but the conflict with Iran will make the situation even more challenging for both the government and the nation.
On that cheery note, we would like to wish you all the best for the new (financial) year.
My chart for ICAEW this week looks at how the Department for Education has impaired 40% of the value of its student loans outstanding as at 31 March 2025.
This is before taking account of the government’s decision to freeze repayment thresholds over the next three years, which should reduce the impairment to 38%.
According to the Department for Education’s consolidated annual report and accounts 2024/25, the face value of student loans in England increased from £234bn to £265bn during the year ended 31 March 2025. The movements comprised £21bn in new loans advanced to students during the year and £15bn of added interest less £5bn in repayments.
As our chart also illustrates, the carrying value in the department’s balance sheet increased from £151bn to £158bn, once an impairment of £24bn during the year is taken into account – increasing the cumulative impairment from £83bn to £107bn.
This is an increase in the impairment percentage from approximately 35% on 31 March 2024 to 40% on 31 March 2025 based on the fair value of the student loan portfolio calculated by the department.
The £21bn impairment can be analysed between an immediate £6bn impairment on the inception of new loans issued during the year (approximately 30% of their face value) and £15bn from the recalculation of the fair value of loans at the end of the financial year, co-incidentally pretty much offsetting the interest added to the loans.
The loan portfolio can be broken down between Plan 1 loans for undergraduate courses that started before 1 September 2012 (face value £28bn less £14bn cumulative impairment = fair value £12bn on 31 March 2025), Plan 2 loans for undergraduate courses between 2012 and 31 August 2023 (£216bn – £87bn = £129bn), Plan 3 loans for postgraduates (£7bn – £1bn = £6bn) and Plan 5 loans for undergraduate courses starting from 1 September 2023 onwards (£14bn – £3bn = £11bn).
The recent controversy around student loans has been around the interest rates charged on student loans, and in particular those of Plan 2 loans owed by the majority of former students, which are based on RPI + 3%. In the year from 1 September 2025 the interest rate is 6.2% for those earning £51,245 (£4,270 a month) or more reducing to 3.2% for those earning £28,470 (£2,372 a month) or less.
This often means that the balance outstanding grows by more than the amount repaid. For example, someone earning £42,000 (£3,500 a month) with Plan 2 student loans totalling £50,000 on 1 September 2025 would see £2,490 (at an interest rate fractionally under 5%) added to their loan over the year to 31 August 2026. As their repayments would be equal to approximately £1,220 (being 9% on their earnings above the Plan 2 threshold of £28,470) their debt would rise to £51,270.
Most current undergraduates are under Plan 5, which has a flat interest rate of RPI irrespective on income but a lower £25,000 repayment threshold which could see them pay a lot more over their 40-year terms than those on the 30-year Plan 2 loans. In our example, a graduate on £42,000 a year with £50,000 in Plan 5 loans brought forward would see £1,600 added in interest and repay £1,530 to result in a much smaller increase in their outstanding loan balance.
With the government suggesting that they are going to have another look at the way student loans are designed, many graduates will be hoping that reform is the air.
Our chart this week illustrates how UK average total pay fell by 0.2% in real terms over the 12 months to December 2025, following much stronger growth in the previous two years.
According to an Office for National Statistics (ONS) release on 17 February 2026, real average weekly earnings adjusted for consumer price inflation fell by 0.2% in the 12 months to December 2025, following increases of 1.9% and 3.6% over the course of 2023 and 2024 respectively.
After converting the ONS data from weekly to monthly and scaling up to December 2025 pound values, our chart this week illustrates these changes, showing how average weekly total pay (including overtime and bonuses) in real terms increased from £3,029 in December 2022 (in December 2025 values) to £3,086 and £3,198 in December 2023 and 2024 respectively, before falling to and £3,192 in 2025.
Our chart also shows how actual total pay (ie, not adjusted for inflation) increased from £2,760 to £2,919, £3,099 and £3,192 over that same period, increases of 5.8%, 6.2% and 3.0% respectively.
The increases in real pay over the course of 2023 and 2024 partly reflect a catch-up from the 4.9% real-terms fall seen in 2022 and the large minimum wage increases implemented in April 2024 that boosted pay for lower earners, while the real-terms fall in 2025 reflects a spike in inflation that eroded the value of pay awards over the course of the year.
The good news for many employees is that average pay rises during 2026 are expected to be more than the 3.0% experienced last year just as inflation is coming down. This should in theory mean (at least on average) more disposable income that can be either spent or saved.
The Chancellor for one will be hoping that people go out and spend their pay rises this year, as she really needs a boost to the economy if she is to stay on course with her fiscal plans.
My chart for ICAEW this week looks at the cycle of business life since 2017, as the number of business births exceeded business deaths in 2025 for the second year in succession.
According to the Office for National Statistics (ONS), the number of businesses on the Inter-Departmental Business Register (IDBR) grew by 28,470 in 2025, comprising 313,715 business births less 285,245 business deaths.
The IDBR is a database of 2.76m businesses in the UK that are registered for VAT or PAYE or which report turnover in their company filings, business credit reports or are otherwise identified as actively trading.
On 31 March 2025, when it stood at 2.73m, the register comprised 2,096,600 active companies, 380,520 sole proprietor enterprises, 160,865 partnerships, 84,000 charities and other not for profit organisations, and 12,630 public sector organisations.
Business births arise when businesses are added to the register, while deaths occur when businesses are dissolved, their turnover or employment falls to zero for several periods, or the ONS is otherwise notified that they are no longer trading.
As our chart this week illustrates there were a net 13,340 business creations in 2017 (338,625 business births – 325,285 business deaths), 35,275 in 2018 (340,150 – 304,875), 44,270 in 2019 (355,725 – 311,455), 13,665 in 2020 (321,990 – 308,325) and 9,385 (354,280 – 344,895) in 2021. There were a net 47,990 business destructions in 2022 (327,510 – 375,500) and 26,265 in 2023 (307,145 – 333,410), followed by net additions to the IDBR of 14,800 in 2024 (310,615 – 295,815) and 28,470 in 2025 (313,715 – 285,245).
These are equivalent to net changes of +0.5%, +1.3%, +1.6%, 0.5%, 0.3%, -1.7%, -1.0%, +0.5% and +1.0% in 2017 through to 2025 respectively. In 2025, this was made up of an increase of 11.5% less a decrease of 10.5% compared with the start of the year, highlighting the level of churn in the business register.
The net increase of 28,470 in 2025 comprised net increases of 5,035 professional, scientific and technical businesses, 4,400 in the real estate sector, 4,270 in accommodation and food services, 3,355 in retail, 3,000 in construction, 2,785 in transportation and storage, 2,615 in health and social care, 2,515 in arts, entertainment, recreation and other services, 1,645 in education, 1,420 in motor trades, 1,145 in business administration and support services, and 615 in finance and insurance. There were net reductions of 10 in wholesale businesses, 440 in information and communication, 790 in production, and 3,090 in agriculture, forestry and fishing.
The good news is that the number of UK businesses is starting to grow again, which may be a small spark of hope for the UK economy as we enter the second quarter of the 21st century.
This week’s chart looks at how the government is relying on a strong inflow from self-assessment and employee bonuses to meet its revised fiscal targets for the financial year to March 2026.
Our chart this week illustrates the financial results for the UK public sector before net investment expenditure over the twelve quarters to March 2026, including the latest Office for Budget Responsibility (OBR) forecast for the final quarter.
According to the Office for National Statistics (ONS), the full-year current budget deficit – current receipts less current spending including depreciation – was £66bn in 2023/24 and £76bn in 2024/25, while the latest OBR forecast is for a current budget deficit of £52bn for 2025/26.
The current budget balance is different to the headline deficits of £135bn, £152bn and the OBR forecast of £138bn for 2023/24, 2024/25 and 2025/26 as deficits also include net investment spending of £69bn, £76bn and £86bn respectively.
Our chart breaks the current budget balance down by quarter, showing how there were current budget deficits of £44bn, £16bn and £27bn in the first three quarters of 2023/24 and a surplus of £21bn in the fourth quarter of 2023/24. This was followed by current budget deficits of £39bn, £22bn and £35bn and a current budget surplus of £20bn in 2024/25.
Current budget deficits of £50bn, £23bn and £22bn were reported for the first three quarters of the current financial year, with the OBR forecasting a current budget surplus of £42bn in the final quarter. This would bring the total current budget deficit to £53bn, £1bn more than the OBR’s November 2025 full-year forecast of £52bn because of variances in the third quarter.
As the chart illustrates, there is a £64bn swing between a current budget deficit of £22bn in the third quarter of 2025/26 to a current budget surplus of £42bn in the fourth quarter.
This quarter-on-quarter swing can be analysed between:
a £46bn contribution from 2024/25 self-assessment tax returns, most of which were submitted in January 2026 (£28bn income tax and £18bn capital gains tax);
£20bn from higher PAYE income tax and national insurance receipts (principally driven by employee bonuses and first calendar quarter pay rises);
£5bn from lower interest charges (as interest rates and inflation have fallen); less
a net £7bn swing in all other receipts and expenditures across central and local government and public corporations.
The £64bn swing this year is higher than the £55bn swing between the third and fourth quarters of 2024/25. The difference is mainly due to an anticipated £7bn extra from capital gains taxes, principally driven by the rate increases that took effect in October 2024, half-way through the self-assessment tax return period.
The lower current budget deficit in the third quarter compared with a year previously is primarily because of the employer national insurance tax rise from 1 April 2025. This rise also benefited the first quarter of 2025/26 but that was offset by much higher interest charges (principally on inflation-linked debt) amongst other drivers.
Some of the benefit of the swing in the current budget balance in the fourth quarter of the current financial year will be offset by higher net investment spending in the typical end-of-year ‘capital rush’. However, the achievement of the £138bn revised deficit forecast for the current year is primarily in the hands of the taxpayers who submitted their tax returns in January and how well employers operating on a calendar performance year basis did in 2025 and hence the bonuses that they will pay out by the end of March.
We will hope to get a sense of the position in self-assessment tax returns when the January public sector finances are published by the ONS later this month, but we will likely need to wait until April (when the March public sector finances are published) to fully understand what is happening with bonuses.
