Tag: #uk

Public sector net debt hits an unprecedented £2.6trn

Monthly public sector finances for October saw spending continue to exceed receipts by a large margin, even if by less than was predicted earlier in the year.

The Office for National Statistics (ONS) released the month public sector finances for October on Tuesday 21 November 2023. It reported a provisional deficit for the month of October of £15bn, bringing the cumulative deficit for the first seven months of the year to £98bn, £22bn more than in the same period last year.

Alison Ring OBE FCA, Public Sector and Taxation Director for ICAEW, said: “Although it is positive that the cumulative deficit to October of £98bn is less than the £115bn predicted by the OBR, cash going out continues to exceed cash coming in by a very large margin. Public sector net debt has now exceeded £2.6 trillion for the first time, which is a staggering new record.  

“Tomorrow’s Autumn Statement will see the OBR revise and roll forward its forecast, giving the Chancellor so-called headroom to cut taxes or increase spending. But in reality there is no headroom when the public finances continue to be on an unsustainable path without a long-term fiscal strategy to fix them.”

Month of October 2023

The provisional shortfall in taxes and other receipts compared with total managed expenditure for the month of October 2023 was £15bn, made up of tax and other receipts of £85bn less total managed expenditure of £100bn, up 3% and 6% respectively compared with October 2022. 

This was the second highest October deficit on record since monthly records began in 1993, following a monthly deficit of £18bn in October 2020 at the height of the pandemic.

Public sector net debt as of 31 October 2023 was £2,644bn or 97.8% of GDP, the first time it has exceeded £2.6trn – only eight months after it first reached £2.5trn.

Seven months to October 2023

The provisional shortfall in taxes and other receipts compared with total managed expenditure for the seven months to October 2023 was £98bn, £22bn more than the £76bn deficit reported for the first seven months of 2022/23. This reflected a widening gap between tax and other receipts for the seven months of £595bn and total managed expenditure of £693bn, up 5% and 8% respectively compared with April to October 2022.

Inflation benefited tax receipts for the first seven months compared with the first half of the previous year, with income tax up 10% to £137bn and VAT up 9% to £117bn. Corporation tax receipts were up 12% to £55bn, partly reflecting the increase in the corporation tax rate from 19% to 25% from 1 April 2023, while national insurance receipts were down by 4% to £99bn because of the abolition of the short-lived health and social care levy last year. Stamp duty on properties was down by 27% to £8bn and the total for all other taxes was up just 3% to £115bn, much less than inflation as economic activity slowed. Non-tax receipts were up 10% to £63bn, primarily driven by higher investment income.

Total managed expenditure of £693bn in the seven months to October 2023 can be analysed between current expenditure excluding interest of £587bn, up £39bn or 7% over the same period in the previous year, interest of £76bn, up £4bn or 5%, and net investment of £30bn, up £9bn or 44%.

The increase of £39bn in current expenditure excluding interest was driven by a £20bn increase in pension and other welfare (including cost-of-living payments), £12bn in higher central government pay, £6bn in additional central government procurement spending, plus £1bn in net other changes.

The rise in interest costs for the seven months of £4bn to £76bn comprises a £18bn or 53% increase to £52bn for interest not linked to inflation as the Bank of England base rate rose, mostly offset by an £14bn or 37% fall to £24bn for interest accrued on index-linked debt from lower inflation than last year.The £9bn increase in net investment spending to £30bn in the first seven months of the current year reflects high construction cost inflation amongst other factors that saw a £11bn or 17% increase in gross investment to £65bn, less a £2bn or 6% increase in depreciation to £35bn. 

Public sector finance trends: October 2023 Table showing receipts, expenditure, interest, net investment, deficit, other borrowing and debt movement for the seven months to October 2023 plus net debt and net debt / GDP at 31 October 2023. Receipts: £466bn (Oct 2019), £425bn (Oct 2020), £500bn (Oct 2021), £565bn (Oct 2022), £595bn (Oct 2023) Expenditure: (£457bn), (£582bn), (£536bn), (£548bn), (£587bn) Interest: (£38bn), (£26bn), (£41bn), (£72bn), (£76bn) Net investment: (£20bn), (£42bn), (£28bn), (£21bn), (£30bn) [line above subtotal] Deficit: (£49bn), (£225bn), (£105bn), (£76bn), (£98bn) Other borrowing: £5bn, (£61bn), (£61bn), £5bn, (£7bn) [line above total] Debt movement: (£44bn), (£286bn), (£166bn), (£71bn), (£105bn) [line below total] Net debt: £1,821bn, £2,101bn, £2,319bn, £2,454bn, £2,644bn. Net debt / GDP: 82.1%, 99.3%, 97.5%, 95.5%, 97.8%

The cumulative deficit of £98bn is £17bn lower than the Office for Budget Responsibility (OBR)’s official forecast of £115bn for the first seven months of 2023/24 as compiled in March 2023. The OBR is expected to revise its forecast for the full year deficit down from £132bn in tomorrow’s Autumn Statement, but it is still on track to be more than double the £50bn projection for 2023/24 set out in the official forecast from a year earlier (March 2022). 

Balance sheet metrics

Public sector net debt was £2,644bn at the end of October 2023, equivalent to 97.8% of GDP.

The debt movement since the start of the financial year was £105bn, comprising borrowing to fund the deficit for the seven months of £98bn plus £7bn in net cash outflows to fund lending to students, businesses and others net of loan repayments together with working capital movements.

Public sector net debt is £829bn more than the £1,815bn reported for 31 March 2020 at the start of the pandemic and £2,106bn more than the £538bn number as of 31 March 2007 before the financial crisis, reflecting the huge sums borrowed over the last couple of decades.

Public sector net worth, the new balance sheet metric launched by the ONS this year, was -£716bn on 31 October 2023, comprising £1,565bn in non-financial assets, £1,029bn in non-liquid financial assets, £2,644bn of net debt (£305bn in liquid financial assets less public sector gross debt of £2,949bn) and other liabilities of £666bn. This is a £102bn deterioration from the -£614bn reported for 31 March 2023.

Revisions

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled. 

The latest release saw the ONS revise the reported deficit for the six months to September 2023 up by £1.7bn as estimates of tax receipts and expenditure were updated for better data, while the debt to GDP ratio at the end of September 2023 was revised down by 1.4 percentage points from 97.8% to 96.4% as a consequence of updated estimates of GDP.

This article was originally published by ICAEW.

ICAEW chart of the week: Pensioners dilemma

The ‘elephant in the room’ of growing numbers of pensioners and what that will mean for the long-term prospects of the public finances is likely to be avoided yet again at next week’s Autumn Statement.

Pensioners dilemma Two column chart with lines between them showing projected changes in the UK population between 2023 and 2043. 2023: 68.1m (left hand column) Change: +4.0m (+6%) 2043: 72.1m (right hand column) Split into two bars in each column. Pensioners (in purple) 2023: 12.4m Change: +3.3m (+27%) 2043: 15.7m Everyone else 2023: 56.7m Change +0.7m (+1%) 2043: 56.4m

My chart for ICAEW this week is on the ‘elephant in the room’ that haunts fiscal events such as next week’s Autumn Statement – the rapidly rising number of pensioners that is driving some of the biggest line items in the national budget: pensions, health and social care.

This fiscal event is unlikely to be any different, with the Chancellor expected to focus most of his statement on short-term measures to free up headroom for pre-election tax cuts at a time of stagnant economic growth.

Any substantive discussion on the long-term prospects for the public finances is likely to be absent beyond a continued commitment to seeing the debt to GDP ratio start to fall within the next five years. How he – or more likely his successors – might be able to avoid having to raise taxes significantly in the coming decades to pay for the cost of pensions, health and social care for many more people, living longer, sometimes less healthy lives, is unlikely to be at the core of what is announced.

To illustrate the dilemma facing policymakers and the public, our chart shows how pensioners represent 3.3m out of the 4.0m projected increase in the size of the UK population between 2023 and 2043. The total population of the UK is projected to increase by 6% from 68.1m in 2023 to 72.1m in 2043, with the number of pensioners expected to increase by 27% from 12.4m this year to 15.7m in 20 years’ time. 

The number of non-pensioners is expected to increase by 0.7m or 1% from 55.7m to 56.4m, with net inward migration of 5.0m over that period offsetting what would otherwise be a significant fall in the numbers below retirement age. (Not shown in the chart is a projected 3% rise in the working age population and a 7% fall in the number of children.)

The projected 27% rise in the number of pensioners is despite a planned increase in the state pension age from age 66 to age 67 in 2027, one of the few long-term steps the government has taken to mitigate the fiscal effects of rising pensioner numbers. However, increasing the retirement age doesn’t directly impact health and social care costs, as well as being partly offset by the cost of supporting increasing numbers of people out of work between traditional retirement age and the age at which they can take their state pension.

Given the significance of the demographic challenge to the public finances, there is very little public debate on what to do, especially as the current policy of cutting the proportion of spending going on public services outside of health appears increasingly unsustainable. 

Spending on defence and security (the traditional budget to raid) is already close to the NATO minimum and appears likely to need to increase given the global security situation, while extracting further savings from other public services seems extremely unlikely, especially given the reluctance of successive governments to put in the level of upfront and ongoing capital investment that might make operational savings possible.

The irony is that, unlike the game-theory scenario of the prisoners’ dilemma that makes optimal decision-making difficult for two prisoners who can’t communicate with each other, there is no theoretical restriction on the ability of policymakers to talk to the public about the pensioners dilemma and to have a proper debate about that might mean for taxes and public services in the long term.

Read more: ICAEW Autumn Statement 2023 hub.

This chart was originally published by ICAEW.

ICAEW chart of the week: Coronavirus

My chart this week looks at one of the big questions being looked at by the UK COVID-19 Inquiry: why did the UK experience one of the highest death rates in the developed world?

Coronavirus Column chart showing deaths per million population, with each column broken into 2020, 2021, 2022 and 2023 (to 2 Nov) components. Year components only labelled for the UK Japan - 603 (28 in 2020, 120 in 2021, 316 in 2022, 139 in 2023 up to 2 Nov) Australia - 893 (35, 58, 587, 212) Canada - 1,395 (397, 382, 498, 118) Ireland - 1,848 (451, 761, 480, 156) Germany - 2,099 (564, 848, 576, 111) France - 2,599 (983, 938, 580, 98) Italy - 3,259 (1,247, 1,078, 805, 129) USA - 3,365 (1,041, 1,381, 786, 157) UK - 3,421 (1,382, 1237, 583, 219) Greece - 3,635 (451, 1,524, 1,393, 267) 9 Nov 2023. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: Our World In Data, ‘COVID-19 data explorer’ / WHO, ‘Covid-19 dashboard’.

My chart for ICAEW this week is on the coronavirus pandemic and how, according to World Health Organisation (WHO) data as summarised by Our World in Data’s Covid-19 Data Explorer, the UK suffered one of the highest death rates in the developed world.

According to the official statistics, there were 3,421 deaths per million population attributed to COVID-19 in the UK between 1 January 2020 and 2 November 2023. This compares with 603 deaths per million in Japan, 893 in Australia, 1,395 in Canada, 1,848 in Ireland, 2,099 in Germany, 2,599 in France, 3,259 in Italy, 3,365 in the US and 3,635 in Greece.

Not shown in the chart are the total number of cumulative deaths attributed to COVID-19 (ie before dividing by the population) of 74,694 in Japan, 23,289 in Australia, 53,297 in Canada, 9,281 in Ireland, 174,979 in Germany, 167,985 in France, 192,406 in Italy, 1.14m in the USA, 230,974 in the UK, and 37,738 in Greece.

Both Our World In Data and the WHO give warnings about the data, especially given difficulties in identifying which deaths were caused by the coronavirus (especially in 2020 before testing was widely available), whether deaths are recorded when they happened or when they were reported, and differences in how countries attribute deaths to causes. 

Despite those factors, these statistics give an overall impression of how badly the coronavirus affected different countries, especially when combined with other data, such as excess mortality (also not shown in the chart). According to Our World In Data, the cumulative difference between total deaths reported from all causes and projected deaths (based on an extrapolation from the years prior to the pandemic) changes the rankings for the countries in our chart, improving the UK’s position to an extent with the US has more excess deaths proportionately than the UK, and Italy more than Greece. Australia has the lowest level of excess deaths for these countries, below Japan, while France is between Canada and Ireland.

The chart also illustrates the deaths per million of population by year, highlighting how for the UK this was 1,382 in 2020, 1,237 in 2021, 583 in 2022, and 219 in 2023, up to 2 November 2023.

The UK COVID-19 Inquiry is looking at much more than the number of deaths as it considers how coronavirus affected all of us over the past few years, how people were affected, including short- and long-term impacts on health and how people died, as well as the impact on the economy and our lives more generally of COVID-19 – and the UK Government’s response to it.

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation by month

My chart this week looks at how September’s inflation rate of 6.7% is made up by month, and why a big drop in the annual rate is predicted next month.

Inflation by month Step chart showing monthly inflation from October 2022 to September 2022 adding up to annual inflation of +6.7% for the year to September 2023. Oct 2022 +2.0% Nov 2022 +0.4% Dec 2022 +0.4% Jan 2023 -0.6% Feb 2023 +1.1% Mar 2023 +0.8% Apr 2022 +1.2% May 2023 +0.7% Jun 2023 +0.1% Jul 2023 -0.4% Aug 2023 +0.3% Sep 2023 +0.5% Year to Sep 2023 +6.7% 19 Oct 2023. Chart by Marin Wheatcroft FCA. Design by Sunday. Source: ONS, 'Consumer price inflation, UK: September 2023'.

The Office for National Statistics (ONS) reported on 18 October 2023 that the annual rate of consumer price inflation (CPI) for the year to September 2023 was 6.7%.

Our chart this week illustrates how this is made up of monthly inflation rates from October 2022 through September 2023 of +2.0%, +0.4%, +0.4%, -0.6%, +1.1%, +0.8%, +1.2%, +0.7%, +0.1%, -0.4%, +0.3% and +0.5% respectively.

As well as highlighting how the monthly inflation rate can bounce around from month to month, including a couple of times where prices went down, it shows how a big jump in the consumer prices index of +2.0% in October 2022 is a significant component in the annual rate reported for the year to September 2023.

This provides an insight into what is likely to happen to inflation when it is reported next month. Instead of a large rise in domestic energy prices (a 17% increase in the cost of electricity and a 37% increase in the cost of domestic gas between September and October 2022 according to the ONS) that drove the +2.0% reported a year ago, the expectation is that energy prices will drop between September and October 2023 following Ofgem’s decision to reduce the energy price cap by 7% for the current quarter.

When the +2.0% monthly increase from October 2022 drops out of the index to be replaced by a much smaller monthly increase for October 2023 (or even potentially a monthly decrease), the annual rate of inflation should reduce significantly – potentially to as low as the 5.3% ‘halved’ rate of inflation aspired to by the Prime Minister.

For a broader insight into the UK economy, read ICAEW’s economic update October 2023: where next for interest rates?

This chart was originally published by ICAEW.

ICAEW chart of the week: UK births and deaths

My chart this week looks at how deaths in the UK are expected to exceed births within just a couple of years – a major change in our demographic story.

UK births and deaths Line chart showing projected births and deaths for years to June 2024 through to June 2044. Births: 667,000 in the year to June 2024, falling slightly to 662,000 in the year to June 2031, before gradually rising to 718,000 in the year to June 2044. Deaths: 650,000 in the year to June 2024 rising to cross with the line for births in 2026 and continue to rise to 797,000 in the year to June 2044. Source: ONS, '2020-based interim projections (June 2022) - UK births and deaths in the year to June'.

The big drivers of population change in the UK (and in many other developed countries) have been a declining birth rate and more people living longer, resulting in a growing population even before taking account of net inward migration.

However, that growth is starting to slow as the birth rate has declined as a proportion of the overall population – absent migration, it is expected to start to go into reverse as the death rate rises, driven by the bulge in the population constituted by the ‘baby boomer’ generation reaching their 60s and 70s.

As illustrated by my chart this week, the number of births is expected to fall slightly over the next few years (from 667,000 in the year to June 2024 and 668,000 in the year to June 2024 to 662,000 in the year to June 2031) before gradually rising to 718,000 in the year to June 2044. At the same time deaths are expected to rise throughout the period, from 650,000 in the year to June 2024 to 797,000 in the year to June 2044.

The projection is for births of 667,000 and deaths of 665,000 in the year to June 2026, a small net increase of 2,000, before reversing after that to reach 80,000 more deaths than births in the year to June 2044.

The population is still expected to grow, despite this shift from (to use the statistical terminology) ‘natural’ growth in the population (births exceeding deaths) to ‘natural’ contraction (deaths exceeding births). This is because the ONS has assumed net inward migration will continue at an average of 245,000 a year for most of the projection period, resulting in a projected growth in the population of 4.0m people or 6% (from 68.1m to 72.1m) over the next 20 years, in contrast with the 8.4m or 14% increase in the UK’s population over the past two decades.

Without inward migration, the likelihood is that the gap between deaths and births would be even larger than illustrated in our chart, given that a proportion of the children expected to be born will be the children of migrants.

This change in the demographics of the UK will have significant implications for the debate about migration over the coming decades, especially if the population absent migration is shrinking by 80,000 a year by 2044 as projected by the ONS. 

There are also implications for the public finances as, even with net inward migration, population growth is expected to be less than 0.3% a year over the next two decades instead of the 0.7% a year seen over the past 20 years. Not only will that reduce the potential for economic growth, but it will reduce the opportunities for efficiencies of scale in public spending that have been possible in previous decades.

The demographic tale of the 20th century in the UK was one of a rapidly growing population as many more children survived into adulthood, life expectancy increased significantly and migration offset a declining birth rate. The 21st century looks like being a very different story.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK registered businesses

My chart this week looks at the 1.5% drop in the number of VAT- and PAYE-registered businesses in the year to 31 March 2023.

Column chart with two columns for March 2022 (left) and March 2023 (right). Total registered businesses - 2,767,700 (March 2022) and 2,726,830 (March 2023). Companies - 2,058,886 and 2,039,920 Sole proprietors - 427,710 and 413,160 Partnerships - 181,010 and 172,890 Non-profits & public sector - 100,095 and 100,860.

On 27 September 2023, the Office for National Statistics (ONS) published data on the 2,726,830 businesses that were registered for VAT and/or PAYE in the UK as of March 2023, a 1.5% fall from the 2,767,700 businesses that were registered a year previously. 

As illustrated by our chart this week, the number of VAT- and PAYE-registered companies fell by 0.9% from 2,058,885 to 2,039,920, sole proprietorships fell by 3.4% from 427,710 to 413,160, and partnerships fell by 4.5% from 181,010 to 172,890. 

Bucking the trend were non-profit bodies, mutual associations and public sector organisations, which rose by 0.8% from 100,095 to 100,860. The latter comprised 88,375 non-profit bodies and mutuals, 9,030 local authority entities, 3,280 central government entities and 175 public corporations and other publicly owned businesses, as of March 2023.

Not shown in the chart are in the order of 2.8m ‘unregistered’ businesses that are not registered for VAT or PAYE. Most of these are self-employed individuals, sole traders, or one-person companies that generate revenue below the VAT threshold of £85,000 and do not have any payrolled employees.

The number of registered businesses in March 2023 by industry group are comprised as follows: 

  • 415,250 professional, scientific and technical (down 3.7% on March 2022); 
  • 402,165 motor trades (-2.8%); 
  • 377,585 construction (+0.7%);
  • 226,285 business administration and support services (-1.1%); 
  • 187,360 information and communication (-4.5%); 
  • 184,420 arts, entertainment, recreation and other services (+2.0%);
  • 174,830 accommodation and food services (-0.2%); 
  • 151,710 production (-1.8%);
  • 141,390 agriculture, forestry and fishing (-0.8%)
  • 128,600 transport and storage including postal (-6.9%);
  • 113,785 (+2.8%) property, 109,095 health (+2.8%);
  • 59,210 finance and insurance (-2.0%);
  • 47,340 education (+1.3%); and
  • 7,805 public administration and defence (+0.4%).

There were 2,115,105 businesses with between zero and four employees as of March 2023, followed by 313,780 (five to nine employees), 157,955 (10-19), 86,285 (20-49), 27,660 (50-99). 15,135 (100-249) and 10,910 (250+).

By turnover band, the numbers as of March 2023 were: 445,020 (£0-£49,999); 563,610 (£50,000-£99,999); 846,615 (£100,000-£249,999); 367,315 (£250,000-£499,999); 222,155 (£500,000-£999,999); 123,995 (£1m-£2m); 85,655 (£2m-£5m); 32,100 (£5m-£10m); 29,080 (£10m-£50m); and 9,285 (£50m+).

The fall in the number of businesses in 2022/23 is perhaps not surprising given the significant amount of support provided to many businesses during the pandemic, which will have delayed the normal process of business closure during the previous two years. Meanwhile, the cost-of-living and energy crises will have also made it difficult for some businesses to survive in the year to March 2023. Even though energy prices have come down, the cost-of-living crisis and consequent reductions in consumer demand could see further businesses fail during 2023/24.

Find out more: ONS: UK business – activity, size and location 2023.

This chart was originally published by ICAEW.

ICAEW chart of the week: Home Office financial statements 2022/23

The Home Office spent £24.5bn in 2022/23 according to its recently published annual financial report, funded by £5.4bn in income and £19.2bn in net parliamentary funding.

Column chart showing main components of the Home Office financial statements 2022/23. Column 1: Net parliamentary funding £19.2bn Column 2: Income £5.4bn = Customer contracts £3.7bn + Other income £1.7bn Column 3: Expenditure (£24.5bn) = Police grants (£9.2bn) + Other grants (£5.6bn) + Goods and services (£4.3bn) + Staff costs (£2.4bn) + Other operating costs (£3.0bn) 21 Sep 2023. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: Home Office, 'Annual Report and Accounts 2022/23'.

The Home Office published its Annual Report and Accounts for the year ended 31 March 2023 on 19 September 2023. 

Net expenditure in 2022/23 was £19.1bn, comprising expenditure of just over £24.5bn net of income of £5.4bn, while parliamentary funding net of other items amounted to £19.2bn.

The Home Office breaks down its income for the year of £5.4bn between revenue from contracts with customers of £3.7bn and other income of £1.7bn. The former includes £2.2bn from visa and immigration charges, £0.6bn in passport fees, £217m for the disclosure and barring service (DBS), and £0.7bn from other sources. Other income is primarily comprised of immigration health surcharges payable by foreign residents and visitors for the use of the National Health Service, a proportion of which is transferred to the Department of Health and Social Care and the devolved administrations.

As our chart this week illustrates, the majority of the Home Office’s spending is in the form of grants. The largest grants, totalling £9.2bn, are to local police forces across England to supplement the council tax precepts they raise locally. Other grants include £1.7bn to top up police pensions, £0.4bn to top up fire and rescue services pensions, £3.3bn in other operating grants (many of which also go to police forces, in addition to transfers to other government departments) and £209m in capital grants.

Purchases of goods and services of £4.3bn is dominated by the £3.1bn paid in relation to asylum and detention, together with £287m in facilities management and staff services, £229m on professional fees, £219m for media and IT, £169m for passport printing and stationery and £120m for visa and immigration commercial partners amongst other costs.

Staff costs of £2.4bn cover the costs of employing full-time equivalent averages of 41,607 permanent staff, seven ministers, seven special advisers, and 6,489 other staff during 2022/23. Wages and salaries amounted to £1.8bn, equivalent to an average full-time equivalent salary of £37,900. 

At 31 March 2023 there were 345 senior civil servants on salaries in excess of £70,000, of which 251 were between £70,000 and £100,000, 86 between £100,000-£150,000 and eight between £150,000 and £190,000. The average of seven government ministers who served during the year (a total of 22 different individuals!) earned the equivalent of an average annual salary not including pension entitlements of around £49,000 in addition to their parliamentary salary or House of Lords attendance allowances.

Other operating costs of £3.0bn include £1.6bn on IT and accommodation-related service charges, £0.7bn for depreciation and amortisation of assets, and £113m in asset recovery costs together with other costs.

Parliamentary funding net of other items of £19.2bn is reported in the consolidated statement of taxpayers’ equity and comprised £19.4bn in drawn-down parliamentary funding, £0.3bn in deemed funding less £0.5bn in amounts repayable.

Not shown in the chart is the Home Office’s consolidated balance sheet, which comprised £2.6bn in non-current assets, trade and other receivables of £0.7bn and cash and cash equivalents of £0.6bn less trade and other payables of £3.7bn, £0.6bn in lease liabilities and £0.5bn in provisions to give net liabilities of £0.9bn. 

Reported in the notes to the accounts are £0.8bn in capital additions, of which £374m was incurred on software and other intangible assets.

Find out more: Home Office annual report and accounts: 2022 to 2023.

This chart was originally published by ICAEW.

August public sector finances: fourth-highest monthly deficit on record

Deficit marginally better than had been expected according to the latest figures from the ONS, but costly public sector problems emerge.

 The monthly public sector finances for August 2023 were released by the Office for National Statistics (ONS) on Thursday 21 September 2023. These reported a provisional deficit for the fifth month of the 2023/24 financial year of £12bn, bringing the total deficit for the five months to £70bn, £19bn more than in the same period in the previous year.

Alison Ring OBE FCA, Public Sector and Taxation Director for ICAEW, said: “While August’s deficit was marginally better than expected, problems costly to the public sector continue to emerge, from crumbling concrete in public buildings to Birmingham Council’s recent bankruptcy, and are likely to weigh on the Chancellor’s mind as he considers November’s Autumn Statement. 

“Both main parties are rightly cautious about making new public spending commitments in the current economic environment, including whether or not to extend the state pension triple lock into the next parliament. Whether they can hold this position as they enter into the party conference season remains to be seen.”

Month of August 2023

The provisional shortfall in taxes and other receipts compared with total managed expenditure for the month of August 2023 was just under £12bn, being tax and other receipts of £84bn less total managed expenditure of £96bn – up 5% and 8% respectively compared with August 2022.

This was the fourth highest August deficit on record since monthly records began in 1993, following the deficits of £14bn in August 2021 and £24bn in August 2020 during the pandemic and £12bn in August 2009 during the financial crisis.

Five months to August 2023

The provisional shortfall in taxes and other receipts compared with total managed expenditure for the five months to August 2023 was £70bn, £20bn more than the £50bn deficit reported for the first five months of 2022/23. This reflected a widening gap between tax and other receipts for the five months of £428bn and total managed expenditure of £498bn, up 7% and 10% respectively compared with April to August 2022.

Inflation benefited tax receipts for the first five months compared with the previous year, with income tax and VAT receipts both up 12% to £104bn and £84bn respectively. However, corporation tax was only up 13% to £37bn despite the increase in the corporation tax rate from 19% to 25% from 1 April 2023, and national insurance receipts were down by 3% to £71bn because of the abolition of the short-lived health and social care levy last year. Stamp duty on properties was down by £2bn or 29% to £6bn and the total for all other taxes was up just 3% to £82bn as economic activity slowed. Non-tax receipts were up 12% to £44bn, primarily driven by higher investment income.

Total managed expenditure of £428bn in the five months to August can be analysed between current expenditure excluding interest of £418bn (up £34bn or 9% over the same period in the previous year), interest of £61bn (up £6bn or 11%), and net investment of £19bn (up £7bn or 57%).

The increase of £34bn in current expenditure excluding interest compared with the prior year has been driven by a £14bn increase in benefit payments, £9bn in higher central government staff costs, £5bn in additional central government procurement spending and £5bn in energy support scheme costs, plus £1bn in net other changes.

The rise in interest costs of £6bn to £61bn reflects a £14bn increase in interest on non-inflation linked debt to £38bn as the Bank of England base rate rose, offset by an £8bn fall in the interest payable on index-linked debt to £23bn as inflation is running at a lower level than it was for the same period last year.

The £7bn increase in net investment spending to £15bn in the first five months of the current year reflects high construction cost inflation among other factors that saw an £8bn or 23% increase in gross investment to £44bn, less a £1bn increase in depreciation to £25bn. 

Public sector finance trends: August 2023 Image of a table showing receipts, expenditure, interest, net investment, deficit, other borrowing and debt movement for the five months (cumulative) to Aug 2019, 2020, 2021, 2022 and 2023 respectively. Receipts: £336bn (for the five months to Aug 2019(, £298bn, £355bn, £401bn, and £428bn (for the five months ended Aug 2023). Expenditure excluding interest: (£323bn), (£428bn), (£386bn), (£384bn) and (£418bn). Interest (£28bn), (£18bn), (£30bn), (£55bn) and (£61bn). Net investment: (£13bn), (£30bn), (£18bn), (£12bn) and (£19bn). (Subtotal) Deficit: (£28bn), (£178bn), (£79bn), (£50bn) and (£70bn). Other borrowing: £13bn, (£74bn), £6bn, £2bn and £14bn. (Total) Debt movement: (£15bn), (£252bn), (£73bn), (£48bn) and (£56bn). Net debt: £1,792bn, £2,067bn, £2,226bn, £2431bn and £2,594bn. Net debt / GDP: 79.8%, 98.8%, 96.2%, 96.5% and 98.8%,

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled. 

The latest release saw the ONS revise the reported deficit for the four months to July 2023 up by £2bn as estimates of tax receipts and expenditure were updated for better data, and it also reduced the reported deficit for the 2022/23 financial year by £1bn to £128bn for methodology changes in addition to new data. 

The methodology changes also saw small revisions in the reported deficits for previous periods back to 1999, most notably reductions of £1bn to the deficits in 2019/20 and 2020/21 and an increase of £2bn in the reported deficit for 2021/22.

Balance sheet metrics

Public sector net debt was £2,594bn at the end of August 2023, equivalent to 98.8% of GDP.

The debt movement since the start of the financial year was £56bn, comprising borrowing to fund the deficit for the five months of £70bn less £14bn in net cash inflows as loan repayments and positive working capital movements exceeded cash outflows for lending to students, business and others.

Public sector net debt is £779bn or 43% higher than it was on 31 March 2020, reflecting the huge sums borrowed since the start of the pandemic.

Public sector net worth, the new balance sheet metric launched by the Office for National Statistics this year, was -£618bn on 31 August 2023, comprising £1,604bn in non-financial assets, £1,038bn in non-liquid financial assets, £2,594bn of net debt (£339bn in liquid financial assets less public sector gross debt of £2,933bn) and other liabilities of £667bn. This is a £61bn deterioration from the -£557bn reported for 31 March 2023.

This new measure seeks to capture more assets and liabilities than the narrowly focused public sector net debt measure traditionally used to assess the financial position of the UK public sector. However, it excludes unfunded employee pension liabilities that amounted to over £2trn at 31 March 2021 according to the Whole of Government Accounts, although they are expected to be much lower today as discount rates have risen significantly since then.

This article was originally published by ICAEW.

ICAEW chart of the week: Smoking in the UK

My chart of the week looks at how the prevalence of smoking in the UK population has continued to decline over the past decade.

Column chart showing the proportion of adults in the UK who smoke cigarettes. 2011: 20.2% 2012: 19.6% 2013: 18.8% 2014: 18.1% 2015: 17.2% 2016: 15.8% 2017: 15.1% 2018: 14.7% 2019: 14.1% 2020: 14.0% 2021: 13.3% 2022: 12.9% 14 Sep 2023. Chart by Martin Wheatcroft FCA. Design by Sunday. Source: ONS, 'Adult smoking habits in the UK: 2022'.

The Office for National Statistics (ONS) has recently published its latest statistics on adult smoking habits in the UK, showing a continuing decline in the prevalence of smoking in the UK population over the past decade or so.

As my chart this week highlights, the proportion of those aged 18 or over in the UK who smoke cigarettes has fallen from 20.2% in 2011 to 19.6% (2012), 18.8% (2013), 18.1% (2014), 17.2% (2015), 15.8% (2016), 15.1% (2017), 14.7% (2018), 14.1% (2019), 14.0% (2020), 13.3% (2021) and 12.9% in 2022.

Over this period the decline is dramatic, with the respective proportion of men and women smoking down from 22.4% and 18.2% in 2011 to 14.6% and 11.2% in 2022.

The proportion of people smoking in all age groups has fallen over the past 11 years, with those aged 18-24, 25-34, 35-44, 45-54, 55-64 and 65+ who smoke declining from 25.7%, 25.8%, 23.3%, 21.6%, 18.5% and 10.2% in 2011 to 11.6%, 16.3%, 14.5%, 14.3%, 13.6% and 8.3% in 2022.

While the government and anti-smoking campaigners will be pleased by the continued progress in persuading people to give up smoking, they will be more concerned by the increase in the numbers vaping, particularly among those in their late teens and early 20s.

The proportion of those aged 16 or over in Great Britain who use e-cigarettes on a daily or occasional basis increased from 6.4% in 2020 to 8.7% in 2022. For those aged 16-24, 25-34, 35-49, 50-59 and 60+ the increase was from 7.0%, 8.6%, 7.5%, 7.9% and 3.5% in 2020 to 15.5%, 10.6%, 9.5%, 8.5%, 4.4% in 2022. (These percentages are not properly comparable with the smoking statistics as they are for a different comparator period, include those aged 16 and 17, are for different age bands, and exclude Northern Ireland.)

The continued decline in smoking has had a consequent impact on tobacco duty as despite a 70% rise in tobacco duty rates between 2011 and 2022, the amount collected has declined from £9.9bn in 2011/12 to £9.4bn in 2022/23, a drop in cash terms of 5% and in real terms of 26%.

Read more

This chart was originally published by ICAEW.

ICAEW chart of the week: GDP revisions

This week’s chart takes a look at recent revisions to GDP that have caused some consternation in the world of statistics.

Combination of a column chart horizontally and a step chart vertically. Top section: GDP reported in Blue Book 2022 for 2019, 2020 and 2021: 2019: £2,238bn -5.7% = 2020: £2,110bn +7.6% = 2021: £2,270bn (2020 -5.7% nominal, -11.0% growth, 2021 +7.6% nominal, 7.6% growth) Middle section: GDP revisions 2019: -£4bn, 2020: -£6bn, 2021: +£14bn Bottom section: GDP to be reported in Blue Book 2023 2019: £2,234bn -5.8% = 2020: £2,104bn +8.5% = 2021: £2,284bn (2020 -5.8% nominal, -10.4% growth, 2021 +8.5% nominal, 8.7% growth)

Each year the Office for National Statistics (ONS) publishes the ‘Blue Book’ on the national accounts, its definitive analysis of economic activity over the course of the previous year. This analysis supersedes the preliminary and revised monthly and quarterly estimates issued up until that point, based on extensive analysis by the official statisticians.

The 2023 edition of the Blue Book is scheduled to be published on 31 October 2023. It will be eagerly pored over by economists in and outside government who will be eager to understand how the UK economy performed during 2022, and how this ‘final’ version of the 2022 numbers line up with those preliminary and revised estimates, just as they did last year when looking at GDP for 2021.

However, in the world of statistics numbers are never final. On 1 September 2023, the ONS announced methodological and data improvements to last year’s Blue Book – the numbers for 2021 and earlier years. These prior-period adjustments partly reflected a methodology change in the way the three different methods of calculating GDP (output, income and expenditure) are reconciled, but much more significant were revisions to the data used to calculate some of the key statistics, causing much wailing and gnashing of teeth by some prominent economic commentators as the narrative around the UK’s emergence from the pandemic changed.

As our chart this week illustrates, the revisions to GDP do not at first sight appear to be that significant. GDP for 2019 has been revised down by £4bn from the previously reported £2,238bn to a new official number of £2,234bn; GDP for 2020 is £6bn down from £2,110bn to £2,104bn; and GDP for 2021 has been revised up by £14bn from £2,270bn to £2,284bn. These seem relatively small changes when looking at trillions of pounds of economic activity.

Where the change really has an impact is in looking at the trends, especially after adjusting for inflation. On a nominal basis, a 5.7% nominal decrease in 2020 followed by a 7.6% increase in 2021 has changed to a 5.8% decrease and an 8.5% increase, but in real terms the previously reported economic contraction of 11.0% in 2020 followed by a 7.6% recovery has changed to a smaller contraction of 10.4% followed by a stronger recovery of 8.7%.

Of course, the devil is in the detail and some of the revisions at an industry level have been much more dramatic, with wholesalers and retailers now believed to have grown more strongly than previously believed, while the iron and steel industry changed from growth to contraction.

Many economic commentators have focused on the change in quarterly GDP (not shown in the chart) where the arithmetical changes have been more pronounced. The movement from the fourth quarter of 2019 (previously £568bn, now £566bn) and the fourth quarter for 2021 (previously £593bn, now £597bn) has gone from a 4.4% increase over two years to a 5.5% increase; in real terms from a 1.2% contraction in the economy to growth of 0.7%. Still anaemic, but at least in positive territory.

Despite this small improvement in the economic story portrayed by the GDP statistics, we should not get too carried away. Economic growth remains well below the pre-financial crisis levels and the public finances are in a significantly worse state than they were back in 2008.

In the meantime, the Office for Statistics Regulation has commenced a review into how these small revisions with big implications for our understanding of the economy were not identified at the time.

Further reading 

This chart was originally published by ICAEW.