Public sector finances, UK: June 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: June 2022
• Public sector finances borrowing by sub-sector dataset
• UK government debt and deficit: December 2021

• Public sector net borrowing excluding public sector banks (PSNB ex) was £22.9 billion in June 2022, which is the second-highest June borrowing since monthly records began in 1993; this was £4.1 billion more than in June 2021.

• Central government current (or day-to-day) expenditure increased by £9.0 billion to £86.0 billion, largely because of a £10.3 billion increase in the interest payable on its debt compared with June 2021.

• Central government debt interest payable was £19.4 billion in June 2022, which is the highest since monthly records began in April 1997; this is largely because of the effect of Retail Price Index (RPI) rises on index-linked gilts.

• Central government receipts were £70.5 billion in June 2022, which is £7.9 billion more than in June 2021; of this, tax receipts were £51.4 billion, which is an increase of £5.1 billion compared with June 2021.

• PSNB ex was £55.4 billion in the financial year to June 2022; this was £5.7 billion less than in the same period last year but £32.1 billion more than in the financial year to June 2019.

• Since our last publication, we have reduced our estimate of PSNB ex in the financial year ending (FYE) March 2022 by £1.9 billion to £141.8 billion.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £12.3 billion in June 2022, which is £7.0 billion less than in June 2021; this brought the total to £26.2 billion in the financial year to June 2022.

• Public sector net debt excluding public sector banks (PSND ex) was £2,387.6 billion at the end of June 2022, or around 96.1% of gross domestic product (GDP), which is an increase of £183.0 billion or 1.0 percentage points of GDP compared with June 2021.

• Public sector net debt excluding public sector banks and the Bank of England (PSND ex BoE) was £2,068.4 billion at the end of June 2022, or around 83.2% of GDP, which is an increase of £92.0 billion but a reduction of 2.1 percentage points of GDP compared with June 2021.

In June 2022, initial estimates show that the public sector spent more than it received in taxes and other income. This required it to borrow £22.9 billion, which is £0.6 billion more than the Office for Budget Responsibility (OBR) forecast.

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

Central government receipts

Central government receipts in June 2022 were estimated to have been £70.5 billion, which is £7.9 billion more than in June 2021. Of these receipts, tax revenue increased by £5.1 billion to £51.4 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.

The forecasts underlying our current tax estimates reflect the expectations published in the Office for Budget Responsibility’s (OBR) Economic and fiscal outlook – March 2022 and the subsequent monthly profiles published on 12 May 2022.

Compulsory social contributions

In June 2022, compulsory social contributions (largely National Insurance contributions (NICs) were £15.2 billion on an accrued basis, which is £2.4 billion more than in June 2021. Some of this increase is a result of the increase in the NICs rate in place from April 2022 to March 2023.

Though the additional NICs revenue is not separately identifiable in our data, the OBR states in its Economic and fiscal outlook – October 2021 that it is expected to yield £16.5 billion over the financial year ending (FYE) March 2023. After this point, the higher NIC'S rate is expected to revert to its previous level, and the uplift be replaced by the Health and Social Care Levy.

Central government expenditure

Central government bodies spent £86.0 billion on current (or day-to-day) expenditure in June 2022, which is £9.0 billion more than in June 2021.

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).

This month the interest payable on central government debt was £19.4 billion, £10.3 billion more than the previous monthly record set in June 2021, with £16.7 billion of this £19.4 billion cost reflecting the impact of the RPI.

The inflation-linked portion of interest payable on most index-linked gilts is calculated using a three-month lagged RPI. In June 2022, we reference the RPI movement between March and April 2022, where the 11.1 index point growth was largely a result of increases in electricity and gas prices.

RPI increases in the most recent months will be reflected 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 a methodology article explaining The calculation of interest payable on government gilts.

Public sector net borrowing excluding public sector banks (PSNB ex) was £55.4 billion in the financial year (FY) to June 2022; this was £5.7 billion less than in the same period last 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 June 2022 were £208.9 billion, which is £25.5 billion more than a year earlier. Of these, tax receipts were £150.5 billion, which is £14.8 billion more than in the FY to June 2021.

Central government expenditure

Central government bodies spent £239.2 billion on current (or day-to-day) expenditure in the FY to June 2022, which is £3.6 billion more than in the same three-month period last year.

In April 2022, we recorded the Council Tax rebate in England as a payable tax credit from central government to households. This payment was recorded within the Other Expenditure category in Table 7, and the additional expenditure increased central government and subsequently public sector net borrowing by £3.0 billion in April 2022.

The public sector borrowed £141.8 billion in the financial year ending (FYE) March 2022. This was £14.0 billion more than the £127.8 billion forecast by the Office for Budget Responsibility (OBR) in its Economic and fiscal outlook – March 2022. However, this was less than half of that borrowed in the financial year ending (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 14.5%, which is the highest for 75 years. Provisional estimates indicate that this ratio fell by 8.5 percentage points to 6.0% over 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, 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 for which the government is liable or the point at which any liability is incurred – it only reflects when cash is received and spent.

On 10 June 2022, the UK Government made a £0.6 billion interim payment to the EU on outstanding customs duties. This payment is reflected in June’s central government net cash requirement but is not yet recorded in public sector net borrowing. This payment is discussed in our article Recent and upcoming changes to public sector finance statistics: June 2022.

Public sector net debt excluding public sector banks (PSND ex) was £2,387.6 billion at the end of June 2022, which is an increase of £183.0 billion compared with June 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 June 2022 to 96.1% of GDP.

Debt is largely made up of gilts (or bonds) issued to investors by central government. Of the £2,060.4 billion gilts in circulation at the end of June 2022:

• £1,527.3 billion are conventional gilts that pay a fixed interest rate
• £533.2 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.

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).

In February 2022, the BoE announced that it will no longer be replenishing the gilt stock of the APF. Following a £25.1 billion gilt redemption in March 2022, the APF’s gilt holdings currently stand at £734.9 billion (at redemption value).

It is important to understand that this £734.9 billion (conventional) gilt holding is not recorded directly as a component of public sector net debt. Instead, we record the £112.1 billion difference between the £847.0 billion of reserves created to purchase gilts (market value) and the £734.9 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.

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 £2,068.4 billion at the end of June 2022 (or around 83.2% of GDP), PSND ex BoE is £319.2 billion (or 12.9 percentage points of GDP) less than PSND ex.

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 assets held under the TFS, which fall outside the boundary of PSND ex.

PSNFL ex was £2,070.7 billion at the end of June 2022 (or around 83.3% of GDP), which is £316.9 billion (or 12.8 percentage points of GDP) less than PSND ex.

Table PSNFL 3, 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-May 2022

Since our last public sector finances publication on 23 June 2022, we have reduced our estimate of borrowing in the financial year-to-May 2022 by £3.3 billion, as a result of improved estimates of central government receipts and expenditure data.

This month we have increased our estimate of central government tax receipts by £2.4 billion, of which £1.4 billion was because of stronger-than-forecast June VAT cash receipts accruing back into April and May (and March) and £1.0 billion was a result of recording UK Emissions Trading Scheme (UK ETS) receipts for the first time on an accrued basis.

As we noted in our Public sector finances, UK: April 2022 bulletin, initial estimates of borrowing for April and May each year contain a higher degree of estimation than is usual in other months, as profiles of tax receipts, along with departmental and local government spending, are provisional.

This month, we have updated our provisional estimate of central government subsidies with estimates supplied by departments, reducing our initial estimate of subsidies by £1.4 billion.

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

Since our last public sector finances publication on 23 June 2022, we have reduced our estimate of public sector borrowing in the FYE March 2022 by £1.9 billion.

This month, we have increased our estimate of central government tax receipts by £0.5 billion and reduced our previous estimate of compulsory social contributions by £0.5 billion.

We have updated our initial estimates for Contracts for Difference (CfD) with published data, where higher wholesale electricity prices have reduced the subsidy needed to reach the strike price guaranteed to renewable suppliers.

The recording of CfD is borrowing neutral, so in addition to reducing our previous estimate of subsidy payments by £1.9 billion, we have also reduced our corresponding estimate of taxes on production by an equivalent amount.

The downward revision to tax receipts because of CfD was largely offset by increases in our previous estimates of corporation tax, VAT and income tax of £1.4 billion, £0.6 billion and £0.5 billion, respectively.

Tables 12 and 13 show the revisions to central government receipts and expenditure in the financial year-to-May 2022 and FYE March 2022 since our last publication.

Revisions to net borrowing (PSNB ex) in earlier financial years

This month, we have updated our historic estimates of income tax and NICs receipts on an accrued basis. This was to reflect observed receipts paid in later months. Previous accrued estimates were provisional and more uncertain during this period, owing to changes to payment patterns during the coronavirus (COVID-19) pandemic.

In the financial year ending (FYE) March 2021, income tax receipts have been reduced by £0.4 billion and NICs receipts by £0.3 billion.

In the FYE March 2020, income tax receipts have been reduced by £1.2 billion and NICs receipts by £0.9 billion.

Cash receipts in these periods remain unchanged.

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

This month, we have reduced our previous estimate of the level of public sector net debt excluding public sector banks at the end of May 2022 by £0.2 billion from that published on 23 June 2022. This was largely the result of updated Network Rail data.

Revisions to public sector net debt excluding public sector banks expressed as a ratio of GDP

This month we have replaced the GDP first quarterly estimate, UK: January to March 2022 (published 12 May 2022) with the GDP quarterly national accounts, UK: January to March 2022 (published 30 June 2022). As a result, our previously published value of public sector net debt at the end of May 2022 expressed as a ratio of GDP has reduced by around 0.3 percentage points.

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 minus 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 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”.

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.

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.

Coronavirus (COVID-19) loan guarantee schemes

In its Economic and fiscal outlook – March 2022, the OBR estimated that a reduction on calls on the government’s coronavirus (COVID-19) loan guarantee schemes would reduce net borrowing by £4.4 billion in the financial year ending (FYE) March 2022. We will include any impact arising from a change in expected calls when sufficiently reliable data become available.

Student loans

On 24 February 2022, the UK government announced new changes to the student finance system in England. These changes are explained in our Recent and upcoming changes to public sector finance statistics: February 2022 article but are not yet reflected in the public sector finance statistics. The OBR has estimated the impact of these changes on borrowing in its Economic and fiscal outlook – March 2022.

The Energy Bills Support Scheme

The Energy Bills Support Scheme is one part of a package of support to households with rising energy bills, initially announced by the government on 3 February 2022.

On 26 May 2022, the UK government announced a new £15 billion package of targeted government support to help with the rising cost of living, whereby domestic energy customers in Great Britain will receive a £400 discount on their bills in autumn 2022.

The Office for National Statistics (ONS) will carry out a classification review of this new scheme when all the information becomes available. We will also consider other aspects of the recent announcements and reflect them in the public sector finances in due course.

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.

Local government and public corporations

Both local government and public corporations’ data in the most recent periods are initial estimates, largely based on the Office for Budget Responsibility (OBR) Economic and fiscal outlook – March 2022, with adjustments being applied as needed.

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 the financial year ending (FYE) 2021 (April 2020 to March 2021), we have applied a £0.5 billion downward adjustment to current expenditure on benefits, to reflect the most recently available data for housing benefits.

For the FYE 2022, we include:

• a £2.5 billion downward adjustment to England’s capital expenditure
• a £0.5 billion downward adjustment to Scotland’s capital expenditure
• a £0.4 billion downward adjustment to Wales’s capital expenditure
• a £3.5 billion upward adjustment to England’s current expenditure on goods and services

We apply a further £2.1 billion downward adjustment to budget forecast current expenditure on benefits in the FYE 2022, to reflect the most recently available data for housing benefits.

Public corporations’ data for both the FYE March 2021 and FYE March 2022 are estimates largely based on OBR forecasts and as such should be treated as provisional.