Public sector finances, UK: March 2023

• Public sector net borrowing (PSNB ex) in March 2023 was £21.5 billion, £16.3 billion more than in March 2022, and the second-highest March borrowing since monthly records began in 1993.

• PSNB ex in the financial year ending (FYE) March 2023 was initially estimated at £139.2 billion (or 5.5% of gross domestic product (GDP)), £18.1 billion more than in the FYE March 2022 and the fourth-highest FY borrowing since records began in 1946.

• PSNB ex in the FYE March 2023 was £13.2 billion less than forecast by the Office for Budget Responsibility (OBR); however, 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.

• Public sector current budget deficit (PSCB ex) in the FYE March 2023 was initially estimated at £87.4 billion (or 3.5 % of GDP), £15.8 billion more than in the FYE March 2022 and the sixth-highest FY budget deficit since records began in 1946.

• Public sector net debt (PSND ex) at the end of March 2023 was £2,530.4 billion or around 99.6% of GDP, with the debt-to-GDP ratio at levels last seen in the early 1960s.

• PSND ex excluding the Bank of England was £2,246.9 billion or around 88.5% of GDP, which was £283.5 billion lower than the wider measure.

• Our estimate of UK public sector net worth (PSNW ex), published for the first time this month, was a deficit of £605.8 billion at the end of March 2023. 

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £25.1 billion in March 2023, bringing the total for the FYE March 2023 to £111.3 billion, £4.1 billion less than forecast by OBR.

Initial estimates for March 2023 show that the public sector spent more than it received in taxes and other income, requiring it to borrow £21.5 billion.

Public sector receipts were £88.8 billion, £2.0 billion (2.3%) more than in March 2022, though this rise in income was insufficient to offset the £18.3 billion (19.9%) rise in total public sector spending, which reached £110.3 billion in March 2023.

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

In March 2023 central government received £81.0 billion in taxes and other income, £1.6 billion (2.0%) more than in March 2022. However, over the same period spending increased by £15.1 billion (16.8%) to £104.7 billion, in part reflecting the cost of the combined energy support schemes provided to households and businesses in March 2023, initially estimated at around £8.0 billion.

As a result, central government borrowed £23.7 billion in March 2023, more than double the £10.2 billion borrowed in March 2022.

A breakdown of net borrowing by sub-sector and a summary of central government receipts and expenditure data are presented in Tables 1 to 3 in our Public sector finances summary tables: Appendix M.

The £21.5 billion borrowed in March 2023 combined with a reduction of £14.6 billion to our previously published financial year-to-February borrowing estimate brings the total borrowed in the financial year ending (FYE) 2023 to £139.2 billion.

This was £18.1 billion more borrowing than in the FYE 2022 and the fourth-highest FYE borrowing since monthly records began, behind FYE 2021 (during the coronavirus (COVID-19) pandemic) and both the FYE 2010 and FYE 2011 (after the effects of the global financial downturn).

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

In the FYE 2023, the public sector current budget deficit (or borrowing to fund its day-to-day activities) was £87.4 billion (or 3.5% of GDP). This was £15.8 billion (or 0.4% of GDP) more than in FYE 2022, with the steady rise in receipts not enough to offset the £34.0 billion increase in interest payable on the government’s debt and the initally estimated £41.2 billion cost of the combined energy support schemes and other one-off costs.

Over the same period, public sector net investment was £51.8 billion (or 2.1% of GDP), £2.4 billion more (unchanged as a percentage of GDP) than in FYE 2022, with a combination of several smaller changes partially offset by a £10.0 billion upward revaluation of the student loans portfolio.

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

Central government receipts and expenditure data are presented in Tables 1 to 3 of our Public sector finances summary tables: Appendix M. A further detailed breakdown of public sector income is presented in Public sector current receipts: Appendix D.

Central government receipts

Total central government receipts were £929.0 billion in the FYE 2023, an increase of £88.0 billion (10.5%) compared with FYE 2022.

Of these, tax receipts increased by £67.3 billion (10.7%) to £696.0 billion with growth strong in Value Added Tax (up £17.8 billion or 10.7%, being influenced by inflation and substitutionary affects during the energy crisis), Income Taxes (up £26.0 billion or 10.8%, being boosted by record self-assessed taxes) and Corporation Tax (up £10.6 billion or 14.7%, being boosted by the Energy Profits Levy from June onwards).

Boosted by payments for the now cancelled Health and Social Care Levy between April and October 2022, compulsory social contributions (largely National Insurance) increased by £16.7 billion (or 10.4%) over the same period.

Central government current expenditure

Central government current expenditure was £967.0 billion in the FYE 2023, an increase of £74.0 billion (8.3%) compared with FYE 2022, reflecting the impact of rising inflation and energy costs.

The interest payable on debt

The interest payable on debt increased to £106.6 billion, £34.0 billion (46.9%) more compared with FYE 2022, as the rises in the Retail Prices Index 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 (£20.0 billion) and December (£18.0 billion) 2022.

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

Energy support payments

Energy support payments were initially estimated as £41.2 billion in the FYE 2023. Those paid to energy suppliers are recorded as subsidies, while those paid to consumers, are recorded as other current grants.

Subsidy payments

Subsidy payments increased to £56.0 billion, £8.8 billion (18.5%) more than in the FYE 2022, largely because of the cost of the Energy Price Guarantee for households and the Energy Bill Relief Scheme for businesses across the UK, which has been initially estimated at £29.7 billion between October 2022 to March 2023. This increase in expenditure was partially offset by the reduced cost of the COVID-19 job support schemes Coronavirus Job Retention Scheme (£8.5 billion) and Self-Employed Income Support Scheme (£8.3 billion) paid during FYE March 2022.

Other current grants

Other current grants increased to £37.1 billion, £16.5 billion (80.3%) more than in the FYE 2022, largely because of the £11.5 billion cost of Energy Bills Support Scheme paid to consumers in Great Britain between October 2022 to March 2023. Additionally, a £3.2 billion cost-of-living Council tax rebate was paid to households in England and Wales in April 2022 and a £1.1 billion charge relating to the interest payable on historic customs duties owed to the European Commission was recorded in January 2023.

Net social benefits

Net social benefits increased to £254.2 billion, £19.1 billion (8.1%) more compared with FYE 2022, partly because of cost-of-living payments recorded in July (£2.4 billion), September (£0.9 billion) and November 2022 (£2.4 billion), along with an increase to the winter fuel allowance in September 2022 (£2.5 billion). The remainder of the growth largely reflects increases in state pension and universal credit payments.

Central government net investment

Central government investment was £65.3 billion in the FYE 2023, an increase of £6.1 billion (10.3%) compared with FYE 2022.

Payments totalling £5.0 billion were made to the Bank of England Asset Purchase Facility Fund (as a part of the indemnity agreement) and a one-off payment of £1.2 billion to the European Commission relating to historic customs duties owed to the European Commission was recorded in January 2023.

A reduction of the expected losses of the Covid loan guarantees scheme and the impact of student loan policy changes, totalling £7.2 billion were recorded in March 2022 adding to the year-on-year increase.

These increases were partially offset by a £10.0 billion increase in the estimated value of the outstanding student loan portfolio, recorded as a capital transfer from the private sector to central government in December 2022.

The remainder of the growth largely reflects regular data movements rather than one-off effects.

The affordability of borrowing FYE March 2023

Expressing borrowing 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 fiscal position over time.

The coronavirus (COVID-19) pandemic had a substantial impact on the economy as well as public sector borrowing. Expressed as a ratio of GDP, borrowing in the FYE March 2021 was 15.0%, the highest for 75 years.

This ratio fell by 9.8 percentage points to 5.2% in the FYE March 2022 as the economy recovered from the coronavirus pandemic. However, initial estimates show that for the 12 months to March 2023, the ratio has risen by 0.3 percentage points to 5.5%, in part because of the impact of energy prices on the economy and public finances.

The balance sheet describes the financial position at a point in time. It shows the liabilities, (amounts owed) and the assets (amounts owned).

There are several measures of the public sector balance sheet which we discuss in our blog What the UK government owns and what it owes. Here we consider the narrowest measure, which is the redemption value of central government gilts issued by the UK Government's Debt Management Office. We build upon this measure by widening coverage by both the sub-sector and the range of asset and liability types included to reach the far wider measure of public sector net worth, as explained in our methodology.

Public sector net worth, excluding public sector banks, was a deficit of £605.8 billion at the end of March 2023. This compares with a £531.1 billion deficit at the end of March 2022.

Our Public sector balance sheet tables: Appendix N presents a detailed reconciliation between the balance sheet measures summarised in Table 2.

Public sector net debt

The most widely used balance sheet measure is public sector net debt excluding public sector banks (PSND ex), which comprises the excess of the public sector's financial liabilities (in the form of loans, debt securities, deposit holdings and currency) over its liquid financial assets (mainly foreign exchange reserves and cash deposits), with both measured at face or nominal value.

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.

The Bank of England’s contribution to net debt

Public sector net debt excluding the Bank of England (BoE) was £2,246.9 billion, or around 88.5% of GDP, £283.5 billion (or 11.1 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 (APF) Fund.

The APF’s gilt holding is not recorded directly as a component of public sector net debt. Instead, in March 2023, we record the £110.2 billion difference between the £817.2 billion of reserves created to purchase its gilts (at market value) and their £706.9 billion redemption value.

Table PSA9A in our Public sector finances tables 1 to 10: Appendix A details the BoE’s contribution to public sector net debt.

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

Tables 4 to 6 of our Public sector finances summary tables: Appendix M compare our latest public sector finances data with those published in our last public sector finances release on 21 March 2023 and highlight the revisions to borrowing by sub-sector, central government receipts and expenditure.

Revision to net borrowing (PSNB ex) in the financial year-to-February 2023

Since our last public sector finances release on 21 March 2023, we have reduced our estimate of borrowing for the eleven months to February 2023 by £14.6 billion, largely reflecting an increase in the recorded value of outstanding student loans.

This month we have reduced our estimate of central government net investment by £11.2 billion, largely because of the inclusion of a £10.0 billion upward revaluation of the student loan portfolio recorded in December 2022. Further information on the changes to the valuation of student loans is available in our Recent and upcoming changes to public sector finance statistics: March 2023.

This month we have updated our estimates for the government’s renewable energy price guarantee scheme Contracts for Difference (CfD), in line with the latest Office for Budget Responsibility forecast. This update is borrowing-neutral, with both tax receipts received and subsidies paid by central government under the CfD scheme increasing by £3.4 billion. This larger-than-usual revision to CfD was because of the recent uncertainty around energy prices and reflects that while energy prices have exceeded expectation, they have done so by a far lesser degree than was initially forecast.

As well as these larger changes, there were several smaller changes reflecting regular improvements to our provisional receipts and expenditure data.

Revision to net debt (PSND ex) at the end of February 2023

Since our last public sector finances release on 21 March 2023, we have reduced our previous estimate of debt at the end of February 2023 by £9.8 billion (or 0.8 percentage points of GDP), largely because of regular updates to our estimate of Bank of England’s (BoE) contribution to public sector net debt, where some components are reported in arrears.

Further, we have updated our previous estimates of Gross Domestic Product (GDP) with those published on GDP quarterly national accounts, UK: October to December 2022 (31 March 2023).

Table 7 of our Public sector finances summary tables: Appendix M compares our last publication and highlights the revisions with our main public sector net debt measures.

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 (PSCB) 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 (PSNB) 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”.

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.

Public sector net debt

Public sector net debt (PSND) represents the amount of money the public sector owes to the private sector and overseas, net of liquid financial assets held, and is often referred to by commentators as “the national debt”.

Public sector net financial liabilities

Public sector net financial liabilities (PSNFL) is a wider measure of the balance sheet than public sector net debt and includes all financial assets and liabilities recognised in the National Accounts.

Public sector net worth

Public sector net worth (PSNW) is the widest measure of the balance sheet, broadening the PSNFL measure by considering the public sector’s non-financial assets.

Comparing our data with official forecasts

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

In its Economic and fiscal outlook – March 2023, the OBR it is estimated that the public sector would borrow £152.4 billion in the FYE 2023, £24.6 billion less than its Economic and fiscal outlook – November 2022 estimate.

Every month the OBR publishes a brief analysis of the latest public sector finances, explaining how it should be interpreted considering its most recent public finances forecast for the current financial year.

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, Corporation Tax, and Pay as You Earn 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 largely reflect the expectations published in the Office for Budget Responsibility’s (OBR) Economic and fiscal outlook – November 2022. We plan to update these to reflect the OBR’s Economic and fiscal outlook – March 2023 in May 2023.

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 plan to update our estimates to reflect the OBR’s Economic and fiscal outlook – March 2023 in May 2023.

Estimating the cost of the energy support schemes

Though fully reflected in our central government expenditure estimates, the cost of the individual energy support schemes are not separately identifiable in our source data.

Expenditure on the energy price cap schemes, Energy Price Guarantee for households and the Energy Bill Relief Scheme for business customers, are recorded within our “Subsidies” data. To provide an indicative estimate of their combined cost in March 2023, we have assumed that all the year-on-year growth in subsidies are because of these schemes. We have used the estimate for the cost of the energy price cap schemes published in the OBR’s Economic and fiscal outlook – March 2023 for the total cost between October 2022 and March 2023.

The cost of energy support schemes paid directly to consumers are recorded within “Other current expenditure” data. While payments under the Energy Bills Support Scheme (EBSS) to consumers in Great Britain are published separately, we cannot identify the expenditure on the other smaller schemes under the wider EBSS umbrella within our dataset.