Public sector finances, UK: February 2023

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: February 2023
• Public sector finances borrowing by sub-sector dataset
• UK government debt and deficit: September 2022

• Public sector net borrowing (PSNB ex) in February 2023 was £16.7 billion, £9.7 billion more than February 2022 and the highest February borrowing since monthly records began in 1993, largely because of substantial spending on energy support schemes.

• Central government debt interest payable was £6.9 billion in February 2023, £1.3 billion less than February 2022; the recent large movements are because of the effect of Retail Prices Index (RPI) changes on index-linked gilts.

• In the financial year-to-February 2023, the public sector borrowed £132.2 billion, £15.5 billion more than in the same period last year and the third highest financial year-to-February borrowing since monthly records began in 1993.

• Public sector net debt (PSND ex) at the end of February 2023 was £2,507.3 billion or around 99.2% of gross domestic product (GDP), with the debt-to-GDP ratio at levels last seen in the early 1960s.

• PSND excluding the Bank of England was £2,215.7 billion or around 87.7% of GDP, which was £291.5 billion less than the wider measure.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £6.8 billion in February 2023, bringing the total net cash requirement for the financial year-to-February 2023 to £86.2 billion.

Initial estimates for February 2023 show that the public sector spent more than it received in taxes and other income, requiring it to borrow £16.7 billion. This was £9.7 billion more than that borrowed in February 2022 and the highest February borrowing since monthly records began in 1993.

Public sector borrowing includes two broad components: the current budget deficit and capital expenditure (or net investment).

The public sector current budget deficit can be considered borrowing to fund day-to-day spending, as it excludes the capital expenditure (or net investment) present in the wider net borrowing measure.

In February 2023:

• the public sector current budget deficit was £10.0 billion, £7.8 billion more than in February 2022

• public sector net investment was £6.7 billion, £1.9 billion more than in February 2022

Breakdowns of public sector net borrowing by sub-sector and transaction are presented in our Public sector finances borrowing by sub-sector dataset. A further detailed breakdown of public sector income is presented in Public sector current receipts: Appendix D.

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

Initial estimates show that central government’s current receipts in February 2023 were £77.8 billion, an increase of £4.9 billion (6.8%) compared with February 2022. Over the same period, current expenditure rose by £9.5 billion (13.0%) to £80.8 billion, largely because of the substantial cost of its energy support schemes.

Total expenditure, which includes depreciation and net investment, grew to £90.1 billion in February 2023, £11.6 billion (14.7%) more than a year earlier.

Self-assessed (SA) tax receipts

Payments close to the deadline, and the time taken for them to appear in administrative data, mean that a proportion of SA taxes due in January are recorded in February. This can vary year-on-year, so it is advisable to consider January and February together when making annual comparisons.

Combining January and February 2023, SA Income Tax receipts have been provisionally estimated at £24.5 billion, £5.0 billion more than in the same period a year earlier and the highest in any equivalent two-month period since records began in April 1999.

Over the same two-month period, SA Capital Gains Tax receipts (presented within “other taxes on income & wealth” in Tables 2 and 6) have been provisionally estimated at £15.8 billion. This was £3.0 billion more than in the same period a year earlier and the highest in any equivalent two-month period since records began in January 1998.

Further information is available in HMRC tax receipts and National Insurance contributions for the UK on the GOV.UK website.

Interest payable on central government debt

In February 2023, the interest payable on central government debt was £6.9 billion, £1.3 billion less than February 2022 and significantly lower than the recent peaks observed in June and December 2022.

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).

Of the £6.9 billion interest payable in February 2023, £3.4 billion reflected 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 February 2023, we referenced the RPI movement between November and December 2022. We will reflect RPI changes in the most recent months in our interest estimates for future months.

Any RPI uplift will affect accrued expenditure (as used in the calculation of borrowing), but 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 are 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.

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.

The schemes for households and businesses started in October 2022, 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 that will be revised over the coming months.

Energy Bills Support Scheme

The Energy Bills Support Scheme (EBSS) 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 fifth round of EBSS payments, with £1.9 billion of central government expenditure recorded as a current transfer from government to households.

Additionally, provisional estimates of the cost of the Energy support schemes for Northern Ireland, Energy Bills Support Scheme Alternative Funding, Domestic Energy Bills Support Scheme Alternative Fuel Payment and Non-domestic Energy Bills Support Scheme Alternative Fuel Payment in February 2023 are presented along with EBSS within the “other expenditure” category in Tables 3 and 7, but are not separately identifiable in our dataset.

The increase in expenditure on both subsidies and “other” current grants paid by central government in February 2023 compared with a year earlier is estimated to be broadly £9.3 billion. The majority of this is because of new energy support schemes this year. These data are available in Table PSA6E in our Public sector finances tables 1 to 10: Appendix A.

Borrowing in the financial year-to-February 2023

The £16.7 billion borrowed in February 2023, combined with a reduction of £1.4 billion to our previously-published financial year-to-January borrowing estimate, brings the total borrowed in the financial year-to-February 2023 to £132.2 billion.

This was £15.5 billion more than the same period last year and the third highest financial year-to-February borrowing since monthly records began in 1993.

In its Economic and fiscal outlook – November 2022, the Office for Budget Responsibility (OBR) estimated that the public sector would borrow £177.0 billion in the financial year ending (FYE) March 2023. This estimate was subsequently reduced by £24.6 billion to £152.4 billion in its Economic and fiscal outlook – March 2023.

Accounting for the £8.6 billion temporary difference between the Office for National Statistics (ONS) and OBR’s estimates because of the treatment of student loans (see Section 10: Data sources and quality), the public sector could borrow an additional £28.8 billion in March 2023.

Central government receipts

Central government receipts in the FY to February 2023 were £844.7 billion, £84.0 billion (11.0%) higher than a year earlier. Of these, tax receipts were £631.7 billion, £63.2 billion (or 11.1%) higher than the same eleven-month period a year earlier.

Central government expenditure

Initial estimates show that central government bodies spent £882.4 billion on current (or day-to-day) expenditure in the FY to February 2023, £69.5 billion (8.6%) more than in the same period in the previous year.

Total expenditure, which includes depreciation and net investment, grew to £973.5 billion, £79.0 billion (8.8%) more than in the same eleven-month period last year.

Interest payable on central government debt

Debt interest payable increased to £102.6 billion, £33.7 billion (48.8%) more compared with the same period last year, as the rises in the Retail Prices Index (RPI) have increased the interest payable on index-linked gilts. This financial year has seen the two highest monthly amounts on record for debt interest payable in June and December 2022.

Energy price support schemes

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). At this stage, they are initial indicative estimates subject to revision over the coming months.

In October 2022, the UK government also began making payments under the Energy Bills Support Scheme (EBSS). To date, it has paid around £9.6 billion under the EBSS to households in Great Britain. These, along with provisional estimates of the cost of the Energy support schemes for Northern Ireland, Energy Bills Support Scheme Alternative Funding, Domestic Energy Bills Support Scheme Alternative Fuel Payment and Non-domestic Energy Bills Support Scheme Alternative Fuel Payment are presented within the “other expenditure” category in Tables 3 and 7, but are not separately identifiable in our dataset.

In its Economic and fiscal outlook – March 2023, the Office for Budget Responsibility estimate that the combined cost of the energy support schemes across October 2022 to March 2023 will cost £47.0 billion.

Council tax rebate

In April 2022, we recorded the Council tax rebate 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.

EU payments – customs undervaluation case

In February 2023, the government announced a £2.3 billion (€2.6 billion) charge to the UK. This follows the conclusion of the proceedings brought by the European Commission for the failure to prevent the undervaluation of customs duties on Chinese footwear and textile products while the UK was an EU Member State.

Following international statistical guidance, in January 2023 we recorded the payment of the principal as a £1.2 billion (€1.4 billion) capital transfer from central government to the EU. This was presented as a component of the “net investment” category in Tables 3 and 7, and a £1.1 billion (€1.2 billion) payment relating to interest as a current transfer, shown in the “other expenditure” category in Tables 3 and 7.

The public sector borrowed £122.1 billion in the financial year ending (FYE) March 2022. This was £5.7 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 £312.6 billion borrowed in the FYE March 2021.

The coronavirus (COVID-19) pandemic 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%, the highest for 75 years. Our latest estimates show this ratio fell by 9.8 percentage points to 5.2% for the 12 months to March 2022.

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

The CGNCR 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.

Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £6.8 billion in February 2023, bringing the total net cash requirement for the financial year-to-February 2023 to £86.2 billion.

February 2023 saw a payment of £1.1 billion for historic customs duties owed to the EU. Further information on this case and the recording of the resulting charges were explained in our Public sector finances, UK: January 2023 bulletin.

Public sector net debt excluding public sector banks (PSND ex) was £2,507.3 billion at the end of February 2023, an increase of £151.7 billion compared with February last year.

Expressing debt as a ratio of gross domestic product (GDP) – the value of the output of the economy – gives an estimate of its affordability and provides a more robust comparison of the UK’s balance sheet over time.

Public sector debt (PSND ex) at the end of February 2023 was around 99.2% of GDP, with the debt-to-GDP ratio at levels last seen in the early 1960s.

Gilt liabilities

Gilts are the main source of government financing and are issued to investors by the Debt Management Office (DMO) in accordance with its financing remit, on behalf of central government.

Of the £2,123.8 billion of gilts in circulation at the end of February 2023:

• £1,566.4 billion (73.8%) are conventional gilts that pay a fixed interest rate
• £557.3 billion (26.2%) are index-linked gilts that pay an interest rate pegged to the Retail Prices Index (RPI) and are recorded at their redemption value

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; this means 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. It lists gilt discounts (or premia) and the inflation uplift on index-linked gilts as important determinants in this reconciliation.

The Bank of England’s contribution to net debt

Public sector net debt excluding the Bank of England (BoE) was £2,215.7 billion, or around 87.7% of GDP, £291.5 billion (or 11.5 percentage points of GDP) less than the wider measure.

This difference is largely a result of the BoE’s quantitative easing activities, including the gilt-purchasing activities of the Asset Purchase Facility Fund (APF).

The APF’s gilt holding is not recorded directly as a component of public sector net debt. Instead, in February 2023, we recorded the £110.6 billion difference between the £821.2 billion of reserves created to purchase its gilts (at market value) and their £710.6 billion redemption value.

This month, we have introduced improvements to Table PSA9A in our Public sector finances tables 1 to 10: Appendix A which details 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 Term Funding Schemes (TFS), which fall outside the boundary of PSND ex.

PSNFL ex was £2,172.1 billion at the end of February 2023 (or around 85.9% of GDP), £335.1 billion (or 13.3 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 then by outturn data.

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

Since our last public sector finances bulletin published on 21 February 2023, we have reduced our estimate of borrowing for the ten months to January 2023 by £1.4 billion.

This revision was largely because of a £1.9 billion reduction to our previous estimate of central government borrowing. A reduction of £1.6 billion to our previous estimate of central government tax receipts was more than offset by reductions to our previous central government expenditure estimates.

Each quarter, we update our local government and public corporations’ data with the latest estimates. This month, we have increased our previous estimate of local government borrowing by £0.9 billion, while over the same ten-month period we have reduced our previous estimate of public corporations’ borrowing by £0.4 billion.

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

Since our last public sector finances bulletin published on 21 February 2023, we have reduced our estimate of borrowing for the financial year ending (FYE) March 2022 by 0.3 billion, with a £1.1 billion increase to our previous estimate of central government tax receipts being partially offset by an increase to our previous central government expenditure estimates.

Tables 12 and 13 show the revisions to central government receipts and expenditure in the financial year-to-January 2023 and 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 published on 21 February 2023, we have reduced our previous estimate of debt at the end of January 2023 by £3.6 billion. Around £0.7 billion was because of our regular quarterly update of local government and public corporations’ balance sheet data and the remaining £2.8 billion was largely because of improvements to our estimation of Bank of England’s (BoE) contribution to public sector net debt.

Improvements to the in-year profile of BoE’s contribution to public sector net debt

In April 2023, we will introduce a more comprehensive balance sheet presentation which will include public sector net worth on a European System of Accounts basis for the first time. For more information on public sector net worth, see our Wider measures of the public sector balance sheet.

Developing this presentation, we identified improvements to the consolidation of debt instruments within our calculation of the Bank of England’s (BoE) contribution to net debt.

Data for transactions between the Asset Purchase Facility (APF) and other parts of the BoE were previously sourced from a combination of monthly and annual sources. Where monthly estimates had been derived from annual data, we identified these did not fully offset the counterpart from monthly data sources for each period. When these transactions were consolidated within the combined account for the APF and BoE, there was an unintended residual impact on the profile of the BoE’s contribution to net debt.

This month, we have updated the estimates from annual sources with a monthly data source that improved the consolidation of these transactions in each period. The improvements identified through this work are part of a longer development project to make fuller use of available monthly data for the BoE.

These changes have revised our in-year estimated profile of BoE’s contribution to public sector net debt from February 2015 to date, with our estimate of public sector net debt reduced by £2.2 billion compared with our last Public sector finances bulletin published on 21 February 2023.

The remaining £0.6 billion reduction to our previous estimate of BoE’s contribution to public sector net debt was because of a £0.7 billion increase in our estimate of cash held by the Bank of England Asset Purchase Facility Fund, which is reported one month in arrears.

Public sector net debt excluding the Bank of England (PSND ex BoE) is unaffected by these changes.

Revisions to gross domestic product (GDP)

This month, we updated our estimates of GDP used in our public sector net debt ratio to reflect GDP first quarterly estimate, UK: October to December 2022 published by the Office for National Statistics (ONS) on 10 February 2023 and the Economic and fiscal outlook – March 2023 published by the Office for Budget Responsibility on 15 March 2023.

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 pensions, the Bank of England (BoE) and public financial corporations (or public sector banks). The figures presented in this release exclude public financial corporations unless otherwise noted.

Public sector current budget deficit

Public sector current budget deficit is the gap between current expenditure and current receipts on an accruals basis, having taken account of depreciation. The current budget is in surplus when receipts are greater than expenditure and is indicated with a negative sign.

Public sector net borrowing

Public sector net borrowing is the gap between total expenditure and current receipts on an accruals basis. If receipts exceed expenditure, this is referred to as a surplus and is indicated with a negative sign. Borrowing is often referred to by commentators as “the deficit”.

Accruals accounting

Public sector current budget deficit and net borrowing are measured on an accruals basis, where transactions for revenue are recorded when earned and expenses are recorded when incurred rather than when the bills are paid (on a cash basis).

Central government net cash requirement

The central government net cash requirement (CGNCR) represents the cash needed to be raised from the financial markets over a period 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 accruals (or national accounts) based measures of borrowing.

Cash requirement may be like 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 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”.

Net debt comprises the public sector's financial liabilities (in the form of loans, debt securities, deposit holdings and currency) less its liquid financial assets (mainly official reserves and cash deposits), with both measured at face or nominal value. Net debt is often presented as a percentage of gross domestic product (GDP), which enables comparisons over time and is derived in accordance with European System of Accounts (ESA) principles.

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 15 March 2023, the OBR published its Economic and fiscal outlook – March 2023 presenting their latest economic forecasts.

Student loan reforms

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. This same estimate is also used in the Economic and fiscal outlook – March 2023.

Recorded as a capital transfer from the private sector to central government paid in December 2022, this reduced the OBR’s December borrowing estimate.

We will record the full impact of the changes to student loan arrangements when more definite estimates become available.

Change to bulletin format

In April 2023, we will publish a newly formatted, more concise, public sector finances (PSF) statistical bulletin.

We will not remove any of our supporting datasets but will add a new and expanded balance sheet presentation. This will provide reconciliation between the narrowest measure – the redemption value of central government gilts – and build upon this by widening the range of asset and liability types included to reach the far wider public sector net worth measure. For information about public sector net worth, see our Wider measures of the public sector balance sheet.

Many of the tables in the current bulletin will be extended and presented in Excel only, linked from the relevant sections.

We will be removing our discussion of net cash requirement, though the headline in Section 2: Main points and the detail in our Public sector finances tables 1 to 10: Appendix A will remain.

A mock-up of the new format will soon be available on request by contacting us at public.sector.inquiries@ons.gov.uk.

To supplement this release, we publish an accompanying Public sector finances methodological guide and Public sector finances Quality and Methodology Information (QMI) 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. We will update our estimates to reflect the Economic and fiscal outlook – March 2023 at the earliest opportunity.

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 financial year ending (FYE) 2023, we include:

• a £1.0 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 £2.0 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.

We will update our estimates to reflect the Economic and fiscal outlook – March 2023 at the earliest opportunity.