Public sector finances, UK: May 2022

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:
23 June 2022

Cyhoeddiad nesaf:
21 July 2022

2. Main points

  • Public sector net borrowing excluding public sector banks (PSNB ex) was £14.0 billion in May 2022, the third-highest May borrowing since monthly records began in 1993; this was £4.0 billion less than in May 2021 but £8.5 billion more than in May 2019, before the coronavirus (COVID-19) pandemic.

  • Central government receipts were £66.6 billion in May 2022, £5.7 billion more than in May 2021, of which tax receipts were £48.3 billion, an annual increase of £3.4 billion.

  • Central government current (or day-to-day) expenditure was £74.0 billion in May 2022, £2.2 billion less than in May 2021, with the additional £3.1 billion cost of debt interest payments made this year being offset by a reduction of £4.9 billion in subsidies paid.

  • PSNB ex was £35.9 billion in the financial year to May 2022; this was £6.4 billion less than in the same period last year but £19.8 billion more than in the financial year to May 2019.

  • Since our last publication we have reduced our estimate of PSNB ex in the financial year ending (FYE) March 2022 by £0.9 billion which brought the full-year total to £143.7 billion; additionally we reduced PSNB ex in FYE March 2021 by £7.8 billion which brought the full-year total to £309.6 billion.

  • Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £11.5 billion in May 2022, £12.3 billion less than in May 2021 and brought the total to £13.9 billion in the financial year to May 2022.

  • Public sector net debt excluding public sector banks (PSND ex) was £2,363.2 billion at the end of May 2022, or around 95.8% of gross domestic product (GDP), an increase of £170.1 billion or 0.5 percentage points of GDP compared with May 2021.

  • Public sector net debt excluding public sector banks and the Bank of England (PSND ex BoE) was £2,041.8 billion at the end of May 2022, or around 82.8% of GDP, an increase of £88.0 billion but a reduction of 2.1 percentage points of GDP compared with May 2021.

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This release presents the first estimates for the month of May 2022 and the third provisional estimates of UK public sector finances for the latest full FYE March 2022; these are not final figures, and they will be revised over the coming months as we replace our initial estimates with provisional and then final outturn data.

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3. Borrowing in May 2022

In May 2022, initial estimates show that the public sector spent more than it received in taxes and other income. This required it to borrow £14.0 billion, £3.7 billion more than the Office for Budget Responsibility (OBR) forecast.

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The figures for the latest month of every release contain some forecast data. The initial outturn estimates for the early months of the financial year, contain more forecast data than other months, as profiles of tax receipts, along with departmental and local government spending are provisional. This means that the data for these months are typically more prone to revision than other months and can be subject to sizeable revisions in later months.

Central government forms the largest part of the public sector. 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 May 2022 were estimated to have been £66.6 billion, a £5.7 billion increase compared with May 2021. Of these receipts, tax revenue increased by £3.4 billion to £48.3 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 May 2022, compulsory social contributions (largely National Insurance contributions (NICs)) were £14.4 billion on an accrued basis, £2.0 billion more than in May 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 said, in its Economic and fiscal outlook – October 2021 that expected it to yield £16.5 billion over the 12-month period after which it will revert to its previous rate and be replaced by the Health and Social Care Levy (HSCL).

Central government expenditure

Central government bodies spent £74.0 billion on current (or day-to-day) expenditure in May 2022, £2.2 billion less than in May 2021.

Interest payments on debt by central government

The recent high levels of debt interest payments are largely a result of higher inflation, as the interest paid on index-linked gilts rises with increases in the Retail Prices Index (RPI).

In May 2022, central government debt interest was £7.6 billion, of which the RPI uplift on index-linked gilts contributed £5.0 billion over and above the accrued coupon payments and other components of debt interest. On an accrued basis, this month saw the third highest debt interest payment made by central government in any single month and the highest payment made in any May on record.

To estimate the RPI uplift for three-month lagged index-linked gilts in May 2022, we reference the RPI movement between February and March 2022. RPI increases in the most recent months will be reflected in our interest estimates in due course.

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.

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4. Borrowing in the financial year to May 2022

PSNB ex was £35.9 billion in the financial year (FY) to May 2022; this was £6.4 billion less than in the same period last year but still £19.8 billion more than in the financial year (FY) to May 2019.

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 FY to May 2022 were £136.0 billion, £14.9 billion more than a year earlier. Of these, tax receipts were £96.7 billion, an increase of £7.1 billion compared with the FY to May 2021.

Central government expenditure

Central government bodies spent £154.4 billion on current (or day-to-day) expenditure in the FY to May 2022, £4.5 billion less than in the same two-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.

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5. Borrowing in the financial year ending March 2022

The public sector borrowed £143.7 billion in the financial year ending (FYE) March 2022. This was £15.9 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%, the highest for 75 years. Provisional estimates indicate that this ratio fell by 8.4 percentage points over the 12 months to March 2022, to 6.1%.

Central government receipts

Central government receipts in FYE March 2022 were £837.5 billion, £112.4 billion more than a year earlier. Of these, tax receipts were £625.5 billion, an increase of £99.5 billion compared with the FYE March 2021.

Central government current expenditure

Central government current (or day-to-day) expenditure increased considerably over the coronavirus pandemic. While it remains high at £895.4 billion in the FYE March 2022, it was £39.7 billion less than a year earlier.

Notably, there was a reduction of £67.7 billion (or around 57%) in subsidies, mainly because of the closure of the job support (furlough) schemes. However, this saving was partially offset by a £30.5 billion (or around 77%) increase in debt interest payments. This was largely a result of the interest paid on index-linked gilts rising with inflation.

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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 payments to and from central government, but 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.

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7. Debt

Public sector net debt excluding public sector banks (PSND ex) was £2,363.2 billion at the end of May 2022, an increase of £170.1 billion compared with May 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 May 2022 to 95.8% of GDP.

Debt is largely made up of gilts (or bonds) issued to investors by central government. Of the £2,031.2 billion gilts in circulation at the end of May 2022:

  • £1,515.8 billion are conventional gilts that pay a fixed interest rate
  • £515.3 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 (or market value of the gilts) 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 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 £2,041.8 billion at the end of May 2022 (or around 82.8% of GDP), PSND ex BoE is £321.4 billion (or 13.0 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 £2,055.0 billion at the end of May 2022 (or around 83.3% of GDP), £308.1 billion (or 12.5 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.

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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.

Revisions to net borrowing (PSNB ex) in April 2022

Since our last public sector finances publication (24 May 2022), we have increased our estimate of borrowing in April 2022 by £3.3 billion, as a result of improved estimates of central government receipts and expenditure data.

As we noted in our previous Public sector finances bulletin, initial estimates of borrowing for April 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.

Most substantially, we have increased our estimates of central government expenditure on debt interest and on subsidies by £2.1 billion and £1.3 billion respectively as provisional departmental estimates have replaced initial OBR-based forecasts.

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

Since our last public sector finances publication on 24 May 2022, we have reduced our estimate of public sector borrowing in the financial year ending (FYE) March 2022 by £0.9 billion.

A £1.3 billion reduction in our previous estimate of local government net borrowing has been partially offset by a £0.9 billion increase in that of public corporations. In both cases these revisions centred around the final quarter of the financial year, with improved estimates replacing previously published forecasts. Improvements to our data relating to the provision of council housing offset between local authorities and public corporations.

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

Revisions to net borrowing (PSNB ex) in the financial year ending (FYE) March 2021

Since our last public sector finances publication on 24 May 2022, we have reduced our estimate of borrowing in the FYE March 2021 from £317.3 billion to £309.6 billion, largely because of a £8.5 billion reduction in our estimate of central government day-to-day (or current) expenditure.

Most central government departments usually publish their audited resource accounts by August of each year, enabling us to reflect them in our September public sector finances release. Because of the exceptional demands of the coronavirus (COVID-19) pandemic, a number of central government departments delayed the publication of their audited accounts for the FYE 2021 (April 2020 to March 2021). This caused us to delay our usual scheduled update to central government data for FYE 2021.

The audited accounts for FYE 2021 have now been published and our estimates of central government borrowing have now been updated to reflect them for the first time in this release.

As these data include transfers from central government to both local government and public corporations, our estimates of borrowing for these sub-sectors have also been revised, however these intra public sector transfers net out at a public sector level.

Notably, our previously published estimate of expenditure on goods and services has been reduced by £7.1 billion. This expenditure category has proved to very difficult to estimate over the course of the coronavirus (COVID-19) pandemic as it contained many of the support packages provided by central government to both individuals and businesses.

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 April 2022 by £2.5 billion from that published on 24 May 2022. This was largely the result of updated estimates of local government debt that are supplied on a quarterly basis.

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9. Public sector finances data

Public sector finances tables 1 to 10: Appendix A
Dataset | Released 23 June 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 23 June 2022
A summary of the large events which impact on the current public sector net borrowing excluding public sector banks (PSNB ex) and public sector net debt excluding public sector banks (PSND ex) from the period May 2000 onwards.

Public sector finances revisions analysis on main fiscal aggregates: Appendix C
Dataset | Released 23 June 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 23 June 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 23 June 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 | Released 23 June 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 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.

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11. Measuring the data

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.

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12. Strengths and limitations

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 finance 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 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 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 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.

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Manylion cyswllt ar gyfer y Bwletin ystadegol

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