Public sector finances, UK: December 2021

How the relationship between UK public sector monthly income and expenditure leads to changes in deficit and debt.

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Cyswllt:
Email Fraser Munro

Dyddiad y datganiad:
25 January 2022

Cyhoeddiad nesaf:
22 February 2022

1. Other pages in this release

Other commentary from the latest public sector finances data can be found on the following pages:

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2. Main points

  • Public sector net borrowing excluding public sector banks (PSNB ex) was estimated to have been £16.8 billion in December 2021; this was the fourth-highest December borrowing since monthly records began in 1993, £7.6 billion less than in December 2020.

  • PSNB ex was estimated to have been £146.8 billion in the financial year-to-December 2021; this was the second-highest financial year-to-December borrowing since monthly records began in 1993, £129.3 billion less than in the same period the previous year.

  • Public sector net debt excluding public sector banks (PSND ex) was £2,339.9 billion at the end of December 2021 or around 96.0% of gross domestic product (GDP), the highest ratio since March 1963 when it was 98.3%.

  • Public sector net debt excluding public sector banks and the Bank of England (PSND ex BoE) was £2,016.5 billion at the end of December 2021 or around 82.7% of GDP.

  • Provisional December 2021 estimates indicate that central government receipts were £68.5 billion, up £6.2 billion (or 10.0%) compared with December 2020, while central government bodies spent £84.7 billion, down £1.0 billion (or 1.2%) from December 2020.

  • Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £17.6 billion in December 2021, £15.8 billion less than in December 2020, bringing the total for the financial year-to-December 2021 to £131.9 billion.

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3. The impact of coronavirus on the public finances

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy as well as public sector borrowing and debt.

In total, more than 50 schemes have been announced by the UK government and the devolved administrations to support individuals and businesses during the coronavirus pandemic. Lower receipts combined with the additional cost of these schemes have resulted in record borrowing.

Provisional estimates indicate that in financial year ending (FYE) 2021 (April 2020 to March 2021), the public sector borrowed £321.8 billion, more than double the previous record of £157.8 billion in FYE 2010, during the economic downturn following the global financial crisis.

Borrowing in FYE 2021 was equivalent to 15.0% of UK gross domestic product (GDP), the highest such ratio since the end of World War Two, when it was 15.2% in FYE 1946.

The extra funding required by government coronavirus support schemes, combined with reduced cash receipts and a fall in GDP, have all helped to push public sector net debt at the end of December 2021 to 96.0% of GDP, a level last seen in the early 1960s.

More about economy, business and jobs

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4. Borrowing in December 2021

In December 2021, the public sector spent more than it received in taxes and other income, requiring it to borrow £16.8 billion. This was the fourth-highest December borrowing on record: lower than in December 2020 and lower than in both December 2009 and 2010 during the economic downturn following the global financial crisis.

Central government

Central government is the largest sub-sector of the public sector and therefore changes in central government receipts and expenditure usually have the most influence on public sector net borrowing.

Central government receipts

Central government receipts in December 2021 were estimated to have been £68.5 billion, a £6.2 billion increase compared with December 2020. Of these receipts, tax revenue increased by £4.6 billion to £50.7 billion.

In the most recent months, tax receipts recorded on an accrued basis are subject to some uncertainty. This is because many taxes such as Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax contain some forecast cash receipts data and are liable to revision when actual cash receipts data are received.

Forecasts underlying our current tax estimates reflect the Office for Budget Responsibility's (OBR) Economic and Fiscal Outlook -- October 2021 and the subsequent monthly profiles published on 9 December 2021.

Central government expenditure

Central government bodies spent £84.7 billion in December 2021, £1.0 billion less than in December 2020.

Interest payments on debt by central government

Interest payments on central government debt were £8.1 billion in December 2021, a December record and £5.4 billion more than in December 2020, albeit lower than in June 2021 when interest payments were £9.0 billion.

The recent high levels of debt interest payments are largely a result of movements in the Retail Prices Index (RPI) to which index-linked gilts are pegged.

To estimate the RPI uplift for three-month lagged index-linked gilts in December 2021, we reference the RPI movement between September and October 2021, while the eight-month lagged index-linked gilts reference the RPI movement between March and April 2021.

In December 2021, the RPI uplift on index-linked gilts was £5.5 billion.

RPI increases in the most recent periods will be reflected in our interest estimates in the coming months.

While any RPI uplift will impact on accrued expenditure (as used in the calculation of borrowing) it will not be wholly and immediately reflected in the central government net cash requirement. These movements are reflected in the government's liabilities, which will be realised as the existing stock of index-linked gilts is redeemed.

Central government expenditure on procurement and pay

Central government departments spent £32.6 billion on goods and services in December 2021, an increase of £2.7 billion from December 2020.

Spending in this area includes £18.0 billion on procurement and £14.0 billion in pay. This cost includes the expenditure by the Department of Health and Social Care (DHSC), devolved administrations and other departments in response to the coronavirus pandemic. It also includes the NHS Test and Trace programme and the cost of vaccines.

Transfers to local government

Central government current transfers to local government were £9.4 billion in December 2021, an increase of £0.3 billion compared with December 2020.

Current and capital transfers between central government and local government are based on administrative data supplied by HM Treasury and have no impact at the public sector level.

Job support schemes

The Coronavirus support schemes, the Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS), closed in September 2021. Our estimates of the cost of these schemes are not yet final. We expect to update our estimates over the coming months as further data become available.

Bulb Energy Limited

On 24 November 2021, the energy provider Bulb Energy Ltd was placed in a Special Administration Regime (SAR) by the UK government to ensure continued provision of essential services to its customers.

We will consider the impact of the SAR on the public sector finances and review its recording as part of our classifications work. In the meantime, payments made under the SAR are provisionally treated as expenditure under "other capital transfers", a component of net investment, as they happen. 

Further information is available in our article Recent and upcoming changes to public sector finance statistics: November 2021.

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5. Borrowing in the financial year-to-December 2021

The public sector borrowed £146.8 billion in the financial year-to-December 2021 (April to December 2021), £129.3 billion less than in the same period a year earlier and £12.9 billion less than the official Office for Budget Responsibility (OBR) forecast.

Borrowing had generally been falling since its peak of £157.8 billion during the economic downturn in financial year ending (FYE) 2010. However, largely as a result of the impact of the coronavirus (COVID-19) pandemic, the £321.8 billion borrowed in FYE 2021 was more than double this previous record.

In some cases, the full financial year borrowing is less than that of the year-to-December indicating that there was an overall surplus in the latter part of that financial year, largely because of to the timing of payments of some tax receipts, such as self-assessed Income Tax, which are largely paid in January each year.

Current budget deficit

Public sector current budget deficit is the difference between current (day-to-day) expenditure and current receipts (mainly from taxes), having taken account of depreciation.

In the financial year-to-December 2021, the public sector current budget deficit (excluding public sector banks) was £112.1 billion, indicating that current expenditure was greater than income.

Central government receipts

Central government receipts in the financial year-to-December 2021 were estimated to have been £585.6 billion, a £76.4 billion increase compared with the same period in 2020. Of these receipts, tax revenue increased by £69.2 billion to £430.5 billion.

Central government expenditure

Central government day-to-day (or current) spending was estimated to have fallen by £35.6 billion to £673.9 billion in financial year-to-December 2021, compared with the same period a year earlier.

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6. Central government net cash requirement

The central government net cash requirement (CGNCR), excluding UK Asset Resolution Ltd and Network Rail, is the amount of cash needed immediately for the UK government to meet its obligations. To obtain cash, the UK government sells financial instruments, gilts or Treasury Bills.

The amount of cash required will be affected by changes in the timing of tax payments by individuals and businesses, but does not depend on forecast tax receipts in the same way as our accrued (or national accounts) based measures.

The CGNCR consequently contains the timeliest information and is less susceptible to revision than other statistics in this release. However, as for any cash measure, the CGNCR does not reflect the overall amount for which the government is liable or the point at which any liability is incurred – it only reflects when cash is received and spent.

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7. Debt

Public sector net debt represents the amount of money the public sector owes to private sector organisations (including overseas institutions).

When the government borrows, this normally adds to the debt total, but it is important to remember that reducing borrowing (the deficit) is not the same as reducing the debt.

Public sector net debt excluding public sector banks (PSND ex) was £2,339.9 billion at the end of December 2021, an increase of £207.8 billion compared with the same time the previous year.

The extra funding required by government over the course of the coronavirus (COVID-19) pandemic, combined with reduced cash receipts and a fall in gross domestic product (GDP), have all helped to push public sector net debt at the end of December 2021 to 96.0% of GDP, a level last seen in the early 1960s.

Debt is largely made up of gilts (or bonds) issued to investors by central government. Of the £2,011.1 billion gilts in circulation at the end of December 2021:

  • £1,518.3 billion are conventional gilts that pay a fixed interest rate

  • £492.9 billion are index-linked gilts that pay an interest rate pegged to the Retail Prices Index and are recorded at their redemption value

These gilts are auctioned by the Debt Management Office (DMO), on behalf of central government in accordance with its financing remit.

The Bank of England's (BoE's) contribution to public sector net debt is largely a result of its quantitative easing activities through both its gilt and corporate bond holdings of the Asset Purchase Facility Fund (APF) and the loans made under Term Funding Schemes (TFS).

At the end of December 2021, the APF held £760.0 billion in conventional gilts, however, these are not recorded directly as a component of public sector net debt. Instead, we record the £115.0 billion difference between the £874.9 billion of reserves created to purchase gilts (or market value of the gilts) and the £760.0 billion face (or redemption) value of the gilts purchased. Table PSA9A in our Public sector finances tables 1 to 10: Appendix A, presents the impact of both APF and TFS as a part of BoE's contribution to public sector net debt.

Our public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) measure removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Currently standing at £2,016.5 billion at the end of December 2021 (or around 82.7% of GDP), PSND ex BoE is £323.4 billion (or 13.3 percentage points of GDP) less than PSND ex.

Wider measures of the public sector balance sheet

Public sector net financial liabilities excluding public sector banks (PSNFL ex) provide a more comprehensive measure of the public sector balance sheet, capturing a wider range of financial assets and liabilities than recorded in PSND ex, such as the assets held under the TFS, which fall outside the boundary of PSND ex.

PSNFL ex was £1,971.8 billion at the end of December 2021 (or around 80.9% of GDP), £368.1 billion (or 15.1 percentage points of GDP) less than PSND ex.

Table PSNFL 3, published as a part of Public sector finances tables 1 to 10: Appendix A, provides a reconciliation between the latest measure of PSND ex and PSNFL ex.

PSNFL ex is very similar to the national accounts' concept of public sector net worth (PSNW). The notable differences between the two aggregates are:

  • PSNW includes non-financial assets, whereas PSNFL ex does not

  • deposit, loan and debt security liabilities are recorded at market value in PSNW, whereas in PSNFL ex they are recorded at face value

Our latest estimates of PSNW are presented in the dataset International Monetary Fund's Government Finance Statistics framework in the public sector finances: Appendix E.

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8. Revisions

The data for the latest months of every release contain a degree of forecasts. Subsequently, these are replaced by improved forecasts, as further data are made available and finally by outturn data.

Most central government departments usually publish their audited resource accounts by August of each year enabling us to reflect them in the September publication. Because of the exceptional demands of the coronavirus (COVID-19) pandemic, a number of central government departments are yet to publish their audited accounts for the FYE (financial year ending) 2021 (April 2020 to March 2021).

We will reflect updates from audited outturn in our dataset at the earliest opportunity.

Revisions to net borrowing in the financial year-to-November 2021

Since our last publication (21 December 2021), we have reduced our estimate of borrowing in the financial year-to-November 2021 by £6.0 billion. This is largely because of a reduction of £6.2 billion to our previous estimates of central government borrowing.

We have increased our previous estimates of central government tax receipts by £5.2 billion and debt interest payments by £0.5 billion, while our previous estimate of departmental expenditure on goods and services has reduced by £1.3 billion over the same eight-month period.

Our previous estimate of Corporation Tax receipts has increased by £3.7 billion, largely because of higher than forecast cash payments made by very large companies in December 2021. This cash outturn was larger than any previous month on record. Very large companies pay their Corporation Tax liabilities on a quarterly basis, which is then accrued back over the three months within that quarter, in this case impacting our previously published estimates of accrued receipts for October and for November.

Tables 11 and 12 detail the revisions to central government receipts and expenditure in the financial year-to-November 2021 since our last publication.

This month we have updated the recording of Scottish Social Security Benefit payments, now including them in the Social Assistance category rather than as National Insurance Fund Benefits. The impact of this change is equal and offsetting within central government expenditure on Net Social Benefits.

Revisions to public sector net debt

This month we have increased our previous estimate of the level of debt at the end of November 2021 by £4.1 billion from that published on 21 November 2021. This was largely as a result of a £4.0 billion reduction in our estimate of the cash held within the Asset Purchase Facility Fund.

Revisions to public sector net debt as a ratio of GDP

The latest quarterly national accounts were published on 22 December 2021, revising previously published estimates of gross domestic product (GDP) from Quarter 1 (Jan to Mar) 2020 to Quarter 3 (July to Sept) 2021.

As a result of these changes we have revised our previous estimates of debt expressed as a percentage of GDP, reducing the ratio by up to 0.4 percentage points in each month between November 2020 and 2021 and increasing the ratio by up to 0.2 percentage points in each month between October 2020 and 2019.

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9. Public sector finances data

Public sector finances tables 1 to 10: Appendix A
Dataset | Released 25 January 2022
The data underlying the public sector finances statistical bulletin are presented in the tables PSA 1 to 10.

Large impacts on public sector fiscal measures excluding banking groups: Appendix B
Dataset | Released 25 January 2022
A summary of the large events which impact on the current PSNB ex and PSND ex from the period May 2000 onwards.

Public sector finances revisions analysis on main fiscal aggregates: Appendix C
Dataset | Released 25 January 2022
Revisions analysis for central government receipts, expenditure, net borrowing and net cash requirement statistics for the UK over the last five years.

Public sector current receipts: Appendix D
Dataset | Released 25 January 2022
A breakdown of UK public sector income by latest month, financial year-to-date and full financial year, with comparisons with the same period in the previous financial year.

International Monetary Fund's Government Finance Statistics framework in the public sector finances: Appendix E
Dataset | Released 25 January 2022
Presents the balance sheet, statement of operations and statement of other economic flows for public sector compliant with the Government Finance Statistics Manual 2014: GFSM 2014 presentation.

Revisions to the first reported estimate of public sector net borrowing: Appendix F
Dataset | 25 January 2022
Summarises revisions to the first estimate of UK public sector borrowing (excluding public sector banks) by sub-sector. Revisions are shown at 6 and 12 months after year end.

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10. Glossary

Public sector

In the UK, the public sector consists of six sub-sectors: central government, local government, public non-financial corporations, public sector pensions, the Bank of England (BoE) and public financial corporations (or public sector banks).

Public sector banks

Unless otherwise stated, the figures quoted in this bulletin exclude public sector banks, currently only the NatWest Group (formerly the Royal Bank of Scotland (RBS) Group).

Public sector current budget deficit

Public sector current budget deficit is the gap between current expenditure and current receipts on an accrued basis, having taken account of depreciation.

The current budget is in surplus when receipts are greater than expenditure.

Public sector current expenditure

Current expenditure measures reflect the cost of the public sector's day-to-day activities. For example, central government's provision of services and grants, payment of social benefits and the payment of the interest on its outstanding debt.

Public sector debt interest to revenue ratio

The debt interest to revenue ratio (DIR) represents the proportion of net interest paid (gross interest paid less interest received) by the public sector (excluding public sector banks), compared with the non-interest receipts it receives in a given period.

Public sector net borrowing

Public sector net borrowing excluding public sector banks (PSNB ex) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment (capital spending less capital receipts)). PSNB is often referred to by commentators as "the deficit".

Public sector net cash requirement

The public sector net cash requirement (PSNCR) represents the cash needed to be raised from the financial markets over a period of time to finance the government's activities.

This may be similar to borrowing (the deficit) for the same period and close but not identical to the changes in the level of net debt between two points in time.

Public sector net debt

Public sector net debt excluding public sector banks (PSND ex) represents the amount of money the public sector owes to private sector organisations (including overseas institutions) and is often referred to by commentators as "the national debt".

Public sector net investment

Public sector net investment is the sum of all capital spending, mainly net acquisitions of capital assets and capital grants, less the depreciation of the stock of capital assets.

Public sector net financial liabilities

Public sector net financial liabilities excluding public sector banks (PSNFL ex) is a comprehensive measure of the public sector balance sheet, capturing a wider range of financial assets and liabilities than recorded in PSND ex.

Total managed expenditure

Total managed expenditure (TME) covers all current and capital spending carried out by the public sector, including depreciation. This is equal to public sector current expenditure, plus public sector net investment, plus deprecation.

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11. Measuring the data

The independent Office for Budget Responsibility (OBR) is responsible for the production of official forecasts for the government. These forecasts are usually produced twice a year, in spring and autumn.

The government has announced that the Spring 2022 forecast statement will be published on 23 March 2022, which will be accompanied by an updated set of official forecasts published by the OBR.

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12. Strengths and limitations

To supplement this release we publish an accompanying methodological guide and Quality and Methodology Information outlining the strengths, limitations, and appropriate uses of the public sector finance dataset.

Gross domestic product

Gross domestic product (GDP) measures the value of goods and services produced in the UK. It estimates the size of and growth in the economy.

GDP used to present debt and other headline measures are partly based on provisional and official forecast data. Our December 2021 estimate of monthly GDP requires data across four quarters of GDP. Of these, one is based on the quarterly national accounts published by the Office for National Statistics (ONS) on 22 December 2021 and three are based on the Office for Budget Responsibility's Economic and Fiscal Outlook (October 2021).

Local government and public corporations

In recent years, planned local government expenditure initially reported in local authority budgets has been systematically higher than the final outturn expenditure reported in the audited accounts. We therefore include adjustments, usually to reduce the amounts reported at the budget stage.

For financial year ending (FYE) 2021 (April 2020 to March 2021) we have applied a £0.6 billion downward adjustment to provisional current expenditure on benefits in FYE 2021, to reflect the most recently available data for housing benefits.

For FYE 2022 we include:

  • a £0.5 billion downward adjustment to Scotland's capital expenditure

  • a £0.4 billion downward adjustment to Wales' capital expenditure

  • a £6.0 billion upward adjustment to England's current expenditure on goods and services

We apply a further £0.6 billion downward adjustment to budget forecast current expenditure on benefits in FYE 2022, to reflect the most recently available data for housing benefits.

Public corporations' data in the most recent periods are initial estimates, largely based on the OBR Economic and fiscal outlook (EFO) - October 2021, with adjustments being applied as needed.

Economic statistics governance after EU exit

Following the UK's exit from the EU, new governance arrangements are being put in place that will support the adoption and implementation of high-quality standards for UK economic statistics. These governance arrangements will promote international comparability and add to the credibility and independence of the UK's statistical system.

At the centre of this new governance framework will be the new National Statistician's Committee for Advice on Standards for Economic Statistics (NSCASE).

Further information about NSCASE can be found in the article National Statistician's Committee for Advice on Standards for Economic Statistics (NSCASE) - UK Statistics Authority.

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Fraser Munro
public.sector.inquiries@ons.gov.uk
Ffôn: +44 1633 456402