Public sector finances, UK: December 2022

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

• Recent and upcoming changes to public sector finance statistics: December 2022
• Public sector finances borrowing by sub-sector dataset
• UK government debt and deficit: June 2022

• Public sector borrowing (PSNB ex) in December 2022 was £27.4 billion, the highest December figure since monthly records began in January 1993, largely because of a sharp rise in spending on energy support schemes and an increase in debt interest.

• December’s borrowing was £16.7 billion higher than that of December 2021 and £9.8 billion higher than the latest official forecast published by the Office for Budget Responsibility (OBR); largely because of student loans assumptions made by the OBR (see Section 3).

• Central government debt interest payable was £17.3 billion in December 2022, the highest December figure since monthly records began; the increase in interest payable is largely because of the effect of Retail Prices Index (RPI) changes on index-linked gilts.

• In the financial year-to-December 2022, the public sector borrowed £128.1 billion, £5.1 billion more than that borrowed in the same period last year, but £2.7 billion less than forecast by the OBR.

• Public sector debt (PSND ex) at the end of December 2022 was £2,503.6 billion or around 99.5% of gross domestic product (GDP), with the debt to GDP ratio at levels last seen in the early 1960s.

• Public sector debt excluding the Bank of England was £2,215.4 billion or around 88.0% of GDP, £288.2 billion less than the wider measure.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £23.1 billion in December 2022, bringing the total for the financial year-to-December 2022 to £100.3 billion.

• In the coming months, we plan to include an additional balance sheet aggregate, public sector net worth (PSNW), and present a newly formatted Public Sector Finance (PSF) release.

Initial estimates for December 2022 show that the public sector spent more than it received in taxes and other income, requiring it to borrow £27.4 billion, £9.8 billion more than the £17.6 billion forecast by the Office for Budget Responsibility (OBR).

Following the February 2022 announcement of changes to terms for Student Loans in England, in their Economic and Fiscal Outlook (March 2022) the OBR estimated an £8.6 billion upward revaluation of outstanding student loans.

Recorded as a capital transfer from the private sector to central government, this transfer reduced the OBR’s estimate of public sector borrowing in December 2022 and accounts for most of the difference between the provisional Office for National Statistics (ONS) and the OBR borrowing estimates. We will record the full impact of the changes to student loan arrangements when more definite estimates become available.

Breakdowns of public sector net borrowing by both sub-sector and transaction are presented in our Public sector finances borrowing by sub-sector dataset.

Central government forms the largest part of the public sector. The relationship between its receipts and expenditure is the main determinant of public sector current budget deficit and borrowing.

Central government receipts

Central government receipts in December 2022 were estimated to have been £74.6 billion, which was £3.9 billion more than in December 2021. Of these receipts, tax revenue increased by £3.4 billion to £56.1 billion.

Central government expenditure

Central government bodies spent £91.2 billion on current (or day-to-day) expenditure in December 2022, which was £16.4 billion more than in December 2021.

Energy Price Guarantee schemes

In September 2022, the UK Government announced further plans to help households and businesses manage the cost of energy. These include the Energy Price Guarantee (EPG) for households and the Energy Bill Relief Scheme (EBRS) for businesses across the UK.

This month sees the third round of payments under the scheme for households and businesses, with the associated central government expenditure recorded within the “subsidies – other” category in Tables 3 and 7. This month’s figure is an initial indicative estimate, which will be revised over the coming months.

Energy Bills Support Scheme

The Energy Bills Support Scheme (EBSS), as explained on GOV.UK, is a government scheme announced in April 2022, giving households in Great Britain (with a domestic electricity contract) £400 towards the cost of their energy bills.

It is paid in six evenly spread portions between October 2022 and March 2023. This month sees the third round of EBSS payments, as shown on GOV.UK, with £1.9 billion of central government expenditure recorded as a current transfer from government to households, and presented within the “other expenditure” category in Tables 3 and 7.

Interest payable on central government debt

Since mid-2021, the cost of servicing central government debt has increased considerably. These rising costs do not principally reflect recent increases in the level of government debt, nor is the change in servicing costs driven by large increases in the interest – or coupon – payments by government. Instead, the recent high levels of debt interest payable are largely a result of higher inflation, with the interest payable on index-linked gilts rising in line with the Retail Prices Index (RPI).

In December 2022, the interest payable on central government debt was £17.3 billion, the largest December interest payable on record and the second largest in any single month behind the £20.0 billion recorded in June 2022. Of this £17.3 billion, £13.7 billion reflects the impact of inflation on the index-linked gilt stock.

The inflation-linked portion of interest payable on most index-linked gilts is calculated using a three-month lagged RPI. In December 2022, we reference the RPI movement between September and October 2022. We will reflect RPI changes in the most recent months in our interest estimates for future months.

While any RPI uplift will affect 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.

On 18 July 2022, we published an article explaining The calculation of interest payable on government gilts.

Public sector net borrowing excluding public sector banks (PSNB ex) was £128.1 billion in the financial year (FY) to December 2022, £5.1 billion more than in the same period last year but £2.7 billion less than the £130.8 billion forecast by the Office for Budget Responsibility (OBR).

The latest forecast published by the OBR in its Economic and fiscal outlook – November 2022 estimates that the public sector will borrow £177.0 billion in the FY ending March 2023, £48.9 billion more than in the nine months to December 2022.

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

Public sector current budget deficit

The 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 deficit can be thought of as borrowing to fund day-to-day spending, as it excludes the capital expenditure (or net investment) present in the wider net borrowing measure.

Central government receipts

Central government receipts in the financial year (FY) to December 2022 were £658.1 billion, which was £66.9 billion more than a year earlier. Of these, tax receipts were £484.3 billion, which was £48.5 billion more than in the FY to December 2021.

Central government expenditure

Central government bodies spent £718.9 billion on current (or day-to-day) expenditure in the FY to December 2022, which was £51.0 billion more than in the same nine-month period last year.

Debt interest payable has increased by £33.4 billion compared with the same period last year, as the rises in the Retail Price Index (RPI) have increased the interest payable on index-linked gilts. This year has seen the two highest monthly amounts on record for debt interest payable, in June and December 2022.

In October 2022, the UK Government began making payments under the Energy Price Guarantee (EPG) for households and the Energy Bill Relief Scheme (EBRS) for businesses across the UK. These payments are recorded as subsidies (within the “subsidies – other” category in Tables 3 and 7) but at this stage are initial indicative estimates, which will be revised over the coming months.

In October 2022, the UK Government began making payments under its energy support package schemes. To date it has paid £3.8 billion under The Energy Bills Support Scheme (EBSS) (presented within the “other expenditure” category in Tables 3 and 7).

In April 2022, we recorded the Council Tax rebate, as explained on GOV.UK, in England as a payable tax credit from central government to households. This £3.0 billion payment, was recorded within the “other expenditure” category in Tables 3 and 7.

The public sector borrowed £123.4 billion in the financial year ending (FYE) March 2022. This was £4.4 billion less than the £127.8 billion forecast by the Office for Budget Responsibility (OBR) in its Economic and fiscal outlook – March 2022 and substantially less than the £312.7 billion borrowed in the FYE March 2021.

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy as well as public sector borrowing. Expressed as a ratio of UK gross domestic product (GDP), borrowing in the FYE March 2021 was 15.0%, which was the highest for 75 years. Our latest estimates indicate that this ratio fell by 9.7 percentage points to 5.3% for the 12 months to March 2022. However, the fall has slowed in the financial year to December 2022, being only 0.4 percentage points lower than in the same period a year earlier.

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 payments to and from central government, but it does not depend on forecast tax receipts in the same way as our accrued (or national accounts-based) measures of borrowing.

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 the government is liable for or the point at which any liability is incurred – it only reflects when cash is received and spent.

Public sector net debt excluding public sector banks (PSND ex) was £2,503.6 billion at the end of December 2022, which was an increase of £132.7 billion compared with December last 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 2022 to 99.5% of GDP.

Debt is largely made up of gilts (or bonds) issued to investors by central government. Of the £2,114.8 billion of gilts in circulation at the end of December 2022:

• £1,565.6 billion are conventional gilts that pay a fixed interest rate
• £549.2 billion are index-linked gilts that pay an interest rate pegged to the Retail Prices Index (RPI) and are recorded at their redemption value

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

Gilt prices

In recent months, market interest rates for government debt (gilts) have risen and in many cases, are now higher than the “coupon rate” offered on gilts, reversing the pattern of the last 18 financial years. As a result, achieved gilt auction prices are currently often below the face value of the gilt: that is, they are sold as a discount. If gilts are sold at a discount, the government must sell more gilts to raise a given amount of cash, meaning that debt increases by more than the net cash requirement.

Table REC3 in our Public sector finances tables 1 to 10: Appendix A explains the relationship between central government net cash requirement and net debt, listing both gilt discounts/premia and the inflation uplift on index linked gilts as important determinants in this reconciliation.

The Bank of England’s contribution to debt

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

Our measure of public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Standing at £2,215.4 billion at the end of December 2022 (or around 88.0% of GDP), PSND ex BoE was £288.2 billion (or 11.5 percentage points of GDP) less than PSND ex.

The impact of the APF gilt holdings on debt

The APF’s gilt holdings currently stand at £726.2 billion (at redemption value), a decrease of £18.8 billion compared with November 2022. For more information of their market operations, see the Bank of England’s Results and usage data.

It is important to understand that the APF’s gilt holding is not recorded directly as a component of public sector net debt. Instead, in December 2022, we record the £106.8 billion difference between the £833.0 billion of reserves created to purchase gilts (at market value) and the £726.2 billion 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 the BoE’s contribution to public sector net debt.

Public sector net financial liabilities

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

PSNFL ex was £2,163.0 billion at the end of December 2022 (or around 86.0% of GDP), which was £340.6 billion (or 13.5 percentage points of GDP) less than PSND ex.

Table PSNFL3, published as a part of our Public sector finances tables 1 to 10: Appendix A, provides a reconciliation between the latest measures of PSND ex and PSNFL ex.

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.

Revisions to net borrowing (PSNB ex) in the financial year to November 2022

Since our last public sector finances bulletin on 21 December 2022, we have reduced our estimate of borrowing for the eight months to November 2022 by £4.6 billion. This change was largely because of an increase in our previously reported central government tax receipts of £3.4 billion, and a reduction to our previously published estimate of central government current expenditure.

On 21 December 2022, the Office for Budget Responsibility (OBR) published a set of monthly profiles in line with their November 2022 Economic and fiscal outlook (EFO). This month, we have used these data to improve our estimates of expected cash receipts required to calculate our accrued tax measures.

Most notably, we have increased accrued corporation tax cash receipts for the financial year to November 2022 by £4.1 billion. Corporation tax cash receipts in the most recent periods reflect the tax liabilities on company profits over an extended period. As such, any updates of cash receipts or forecast cash expectations for future months result in extended revisions in earlier periods, as they are accrued back to reflect the timing of the economic activity that generated them.

Rising energy prices have substantially affected the UK Government’s green energy price guarantee scheme Contracts for Difference (CfD), whereby generators are given a fixed price for low carbon generated energy. This month, we have updated our estimates for CfD, in line with the OBR’s latest expectation to reflect the reversed flow of payments associated with the scheme as prices exceed expectations, reducing tax receipts by £2.1 billion and subsidies paid by central government by an equal amount. As such, this update is borrowing neutral.

As we noted previously, our estimates for expenditure under the Energy Price Guarantee (EPG) for households and the Energy Bill Relief Scheme (EBRS) for businesses remain provisional. This month we have revised our previous estimate upward, partially offsetting the impact of the reported CfD revision to subsidies.

Revisions to net borrowing (PSNB ex) in the financial year to March 2022

Since our last public sector finances bulletin on 21 December 2022, we have reduced our estimate of borrowing by £2.0 billion for the financial year ending March 2022.

This month we have increased our previous estimate of accrued VAT receipts by £0.7 billion over the financial year ending March 2022. This was a result of a historical revision to VAT cash receipts by HM Revenue and Customs (HMRC), as detailed in their HMRC Tax Receipts and National Insurance Contributions of the UK publication.

As a result of moving to the new Autumn Statement 2022 forecast published by the OBR on 17 November, we have increased accrued corporation tax cash receipts for the financial year ending March 2022 by £1.2 billion.

Tables 12 and 13 show the revisions to central government receipts and expenditure in the financial year to November 2022 and financial year ending (FYE) March 2022 since our last publication.

Revisions to public sector net debt excluding public sector banks (PSND ex)

Since our last public sector finances bulletin on 21 December 2022, we have reduced our previous estimate of debt by £3.2 billion, largely because of a £3.5 billion increase in our estimate of cash held by the Bank of England Asset Purchase Facility Fund, which is reported one month in arrears.

Revisions to gross domestic product (GDP)

This month, we updated our estimates of GDP used in our public sector net debt ratio to reflect the GDP quarterly national accounts, UK published by the Office for National Statistics (ONS) on 22 December 2022.

The revisions to our debt aggregates are presented in our Public sector finances tables 1 to 10: Appendix A.

Public sector

In the UK, the public sector consists of six sub-sectors: central government, local government, public non-financial corporations, public sector (funded) pensions, the Bank of England (BoE) and public financial corporations (or 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 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 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 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 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). PSNB ex 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 its activities. The amount of cash required will be affected by changes in the timing of payments to and from the public sector rather than when these liabilities were incurred.

However, it does not depend on forecast tax receipts in the same way as our accrued (or national accounts based) measures of borrowing.

PSNCR may be similar to borrowing 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”.

Comparing our data with official forecasts

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.

On 17 November 2022, the OBR published Economic and fiscal outlook – November 2022 containing its latest outlook for the economy and for the public sector finances.

Public sector net worth

In the coming months, we plan to expand our presentation of the public sector balance sheet to include an additional wider balance sheet measure, Public sector net worth (PSNW). PSNW is a similar measure to Public sector net financial liabilities (PSNFL) but captures non-financial assets that fall outside the boundary of the PSNFL measure.

This change will be accompanied by a newly formatted, more concise Public sector finance (PSF) statistical bulletin.  

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

Tax receipts

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.

The forecasts underlying our current tax estimates reflect the expectations published in the Office for Budget Responsibility’s (OBR) Economic and fiscal outlook – November 2022 and the subsequent monthly profiles published on 21 December 2022.

Local government and public corporations

In recent years, planned local government expenditure initially reported in local authority budgets has been systematically lower than final outturn current expenditure reported in the audited accounts and higher than that reported in final outturn capital expenditure. We therefore include adjustments to increase or decrease the amounts reported at the budget stage.

For the FYE 2023, we include:

• a £0.8 billion downward adjustment to Scotland’s capital expenditure
• a £0.4 billion downward adjustment to Wales’s capital expenditure
• a £4.0 billion upward adjustment to England’s current expenditure on goods and services

We apply a further £2.2 billion downward adjustment to budget forecast current expenditure on benefits in the FYE 2023, 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's Economic and fiscal outlook – November 2022, with adjustments being applied as needed, though supplemented by in-year data replacing previous estimates for train operating companies and the Housing Revenue Account.

Student loans

Following the February 2022 announcement of changes to terms for Student Loans in England, these changes to regulations (15 December 2022) include amendments to the repayment threshold for some existing borrowers. Any impacts resulting from these changes will be implemented in the public sector finances at the earliest opportunity.