Public sector finances, UK: May 2021

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: May 2021
• UK government debt and deficit: December 2020

• Public sector net borrowing (excluding public sector banks, PSNB ex) was estimated to have been £24.3 billion in May 2021; this was the second-highest May borrowing since monthly records began in 1993, £19.4 billion less than in May 2020.

• Provisional May 2021 estimates of central government receipts were £56.9 billion, £7.5 billion more than in May 2020, while central government bodies spent £81.8 billion, £10.9 billion less than in May 2020.

• Public sector net borrowing (PSNB ex) was estimated to have been £53.4 billion in the financial year-to-May 2021; this was the second-highest financial year-to-May borrowing since monthly records began in 1993, £37.7 billion less than in the same period last year.

• Public sector net borrowing (PSNB ex) in the financial year ending (FYE) March 2021 was estimated to have been £299.2 billion, revised down by £1.1 billion from last month’s provisional estimate, but remains the highest borrowing since financial year records began in FYE March 1946.

• Expressed as a ratio of gross domestic product (GDP), public sector net borrowing (PSNB ex) in FYE March 2021 was 14.3%, the highest such ratio since the end of World War Two, when it was 15.2% in FYE March 1946.

• Public sector net debt (excluding public sector banks, PSND ex) was £2,195.8 billion at the end of May 2021 or around 99.2% of GDP, the highest ratio since the 99.5% recorded in March 1962.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £23.9 billion in May 2021, bringing the total for the financial year-to-May 2021 to £54.4 billion; the May figure was the second-highest May cash requirement since monthly records began in 1993, £39.2 billion less than in May 2020.

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy and subsequently on public sector borrowing and debt.

Central government tax and National Insurance receipts (combined) in the financial year ending (FYE) March 2021 were £670.8 billion, a fall of £32.0 billion (or 4.5%) compared with the same period a year earlier. Government support for individuals and businesses during the pandemic contributed to an increase of £204.2 billion (or 27.7%) in central government day-to-day (or current) spending to £942.6 billion.

As a result of these low receipts and high expenditure, provisional estimates indicate that in FYE March 2021, the public sector borrowed £299.2 billion, equivalent to 14.3% of the UK’s gross domestic product (GDP). This was £28.2 billion less than the £327.4 billion expected by the Office for Budget Responsibility (OBR) in their Economic and Fiscal outlook – March 2021 on a like-for-like basis.

In total, at least 50 schemes have been announced by the UK government and the devolved administrations to support individuals and businesses during the pandemic. Our article Recent and upcoming changes to public sector finance statistics: May 2021 discusses the largest of the coronavirus schemes by implementation status within the public sector finances.

The extra funding required by government coronavirus support schemes, combined with reduced cash receipts and a fall in GDP have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Public sector net debt (excluding public sector banks, PSND ex) at the end of May 2021 was equivalent to 99.2% of GDP.

The public sector spent more than it received in taxes and other income in May 2021, requiring it to borrow £24.3 billion, the second-highest May borrowing on record.

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, particularly April and May, contain more forecast data than other months, as profiles of tax receipts, along with departmental and local government spending are still provisional. Therefore the data for these months are typically more prone to revision than other months and can be subject to sizeable revisions in later months.

This situation may be more pronounced in financial year ending (FYE) March 2022 than previous years for central government spending. A new HM Treasury (HMT) administration system, used to collect the data, was introduced from June 2021 and used for the first time in this release. As with all system changes there is a possibility that the outputs will be less stable in the initial stages. The Office for National Statistics (ONS) is working with HMT to minimise the impact of the system change on these statistics.

Analysis of the components of borrowing in May 2021

Central government is the largest sub-sector of the public sector and therefore changes in central government receipts and expenditure usually have the most influence on public sector net borrowing. Public sector finances tables 1 to 10: Appendix A provide further information.

Central government receipts

Central government receipts were estimated to have increased by £7.5 billion (or 15.2%) in May 2021 compared with May 2020, to £56.9 billion, including £41.4 billion in tax receipts.

In the most recent months, tax receipts recorded on an accrued (or national accounts) basis are always subject to some uncertainty, as 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 period of uncertainty is longer for taxes with coronavirus deferral schemes, such as Value Added Tax (VAT), and data for these taxes will be provisional for longer than usual.

The data used to inform receipts on a national accounts basis are largely consistent with the Office for Budget Responsibility (OBR) Economic and fiscal outlook – March 2021 published on 3 March 2021. Where necessary, and if there is sufficient information, further adjustments are made to estimate the impact of the coronavirus (COVID-19) pandemic.

Further details of the methods used to estimate the effect of the coronavirus on receipts were provided in Section 12 of Public sector finances, UK: March 2021. There have been no new methodology adjustments this month.

From April 2021, Corporation Tax estimates have been affected to some extent by the introduction of the super-deduction capital allowance, providing tax incentives for those companies investing in qualifying new plant and machinery assets.

Central government expenditure

Central government bodies spent £81.8 billion in May 2021, £10.9 billion (or 11.7%) less than in May 2020.

Interest payments on debt by central government

Interest payments on central government debt were £4.3 billion in May 2021, £0.9 billion (or 26.0%) more than in May 2020. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged.

Central government expenditure on procurement and pay

Central government departments spent £30.9 billion on goods and services in May 2021, including £17.4 billion on procurement and £12.9 billion in pay. This cost includes the expenditure by the Department of Health and Social Care (DHSC), devolved administrations and other departments in response to the coronavirus pandemic including the NHS Test and Trace programme and the cost of vaccines.

Transfers to local government

Central government current transfers to local government were £10.7 billion in both May 2021 and May 2020. In part, these payments enable local authorities to fund coronavirus policies.

Current and capital transfers between central government and local government are based on administrative data supplied by HM Treasury and have no impact at the public sector level.

Contributions to the EU

Many of the UK’s regular monthly payments to the EU stopped with effect from January 2021, while others are ending. This month, the UK did not record any of its regular VAT and gross national income-based contributions to the EU budget. In July 2021, we expect to confirm a decision on the recording of future payments such as those outlined in the Withdrawal Agreement.

Subsidies paid by central government

Central government paid £8.3 billion in subsidies to businesses and households in May 2021, £11.6 billion (or 58.4%) less than in May 2020. This includes the £5.2 billion cost of the job furlough schemes, the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS).

In May 2021, the government spent £2.5 billion on the CJRS, £7.6 billion (or 75.4%) less than in May 2020. While CJRS payments on an accrued basis for the period March 2020 to April 2021 are based on HM Revenue and Customs (HMRC) estimates, the May 2021 amount is based on the OBR’s latest estimates.

In May 2021, the government spent £2.7 billion on the SEISS, £4.1 billion (or 59.7%) less than in May 2020. SEISS payments are currently recorded on a cash basis, consistent with HMRC coronavirus statistics.

The public sector borrowed £53.4 billion in the financial year-to-May 2021, £37.7 billion (or 41.4%) less than in the same period a year earlier. Official forecasts suggest that borrowing may reach £233.9 billion by the end of the financial year.

Analysis of the components of borrowing in financial year-to-May 2021

Borrowing had generally been falling since its peak of £157.7 billion during the economic downturn in financial year ending (FYE) March 2010. However, largely as a result of the impact of the coronavirus (COVID-19) pandemic, the £299.2 billion borrowed in FYE March 2021 was nearly double this previous record.

Central government receipts

Central government receipts were estimated to have increased by £11.4 billion (or 11.1%) in financial year-to-May 2021 compared with the same period a year earlier, to £115.0 billion, which includes £83.7 billion in tax receipts.

Central government expenditure

Central government day-to-day (or current) spending was estimated to have decreased by £25.3 billion (or 13.6%) in financial year-to-May 2021 compared with the same period a year earlier, to £160.3 billion.

Transfers to local government

Central government current transfers to local government were £28.5 billion in the financial year-to-May 2021, £10.6 billion (or 27.0%) less than in the same period a year earlier.

Some coronavirus-related current grants that have been paid by central to local government have either not been spent, or have not yet been fully reflected in our estimates of local government spending.

Subsidies paid by central government

Central government paid £16.9 billion in subsidies to businesses and households in the financial year-to-May 2021, £16.5 billion (or 49.4%) less than in the same period a year earlier. This includes the £10.4 billion cost of the job furlough schemes, the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS).

In the financial year-to-May 2021 the government spent £5.1 billion on the CJRS, £15.1 billion (or 74.6%) less than a year earlier. Over the same time periods, the government spent £5.2 billion on the SEISS, a reduction of £1.6 billion (or 23.1%).

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 tax payments by individuals and businesses but does not depend on forecast tax receipts in the same way as our accrued (or national accounts) based measures.

The CGNCR consequently contains the most timely 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.

NatWest Group plc share sales

On 11 May 2021, the government announced the sale of £1.1 billion of its holding in NatWest Group plc, bringing its level of ownership down from 59.8% to 54.8%.

As with similar sales the cash raised impacts directly on CGNCR and indirectly on net debt in the month the payment was received – in this case central government net cash requirement in May 2021 was reduced by £1.1 billion as a result of the sale. Net borrowing is unaffected by the sale of financial assets.

Tables 7 and 8 demonstrate how CGNCR is calculated from cash receipts and cash outlays. This presentation focuses on the central government’s own account and excludes cash payments to both local government and public non-financial corporations.

Public sector net debt represents the amount of money the public sector owes to private sector organisations (including overseas institutions). When the government borrows, this normally adds to the debt total, but it is important to remember that reducing borrowing (the deficit) is not the same as reducing the debt.

Public sector net debt (excluding public sector banks, PSND ex) stood at £2,195.8 billion at the end of May 2021, an increase of £259.1 billion on the same period last year.

Over the course of the coronavirus (COVID-19) pandemic, the increase in debt combined with a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s, with debt as a ratio of GDP currently standing at 99.2% at the end of May 2021.

Central government gilts

Debt represents the amount of money owed by the public sector to the private sector and is largely made up of gilts (or bonds) issued to investors by central government.

There was £1,913.0 billion of central government gilts in circulation at the end of May 2021 (including those held by the Bank of England (BoE) Asset Purchase Facility Fund).

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

Other financial instruments

On 25 March 2021, the UK government issued £500 million in its second sovereign Sukuk (maturing in 22 July 2026), which added an equivalent amount to central government gross debt, from May 2021.

The Bank of England’s contribution to debt

The Bank of England’s (BoE) contribution to debt is largely a result of its quantitative easing activities through the BoE Asset Purchase Facility (APF) Fund and Term Funding Schemes (TFS).

If we were to remove the temporary debt impact of these schemes along with the other transactions relating to the normal operations of the BoE, public sector net debt excluding public sector banks (PSND ex) at the end of May 2021 would reduce by £226.4 billion (or 10.2 percentage points of GDP) to £1,969.4 billion (or 89.0% of GDP).

The estimated impact of the APF’s gilt holdings on debt currently stands at £117.9 billion, representing the difference between the value of the reserves created to purchase gilts (or market value of the gilts) and the £691.3 billion face (or redemption) value of the gilts purchased.

The total corporate bond holdings of the APF at the end of May 2021 stood at £19.8 billion, adding an equivalent amount to the level of debt.

The TFS loan liability stood at £27.5 billion and the TFSME loan liability stood at £83.0 billion at the end of May 2021, making a combined liability of £110.5 billion, adding an equivalent amount to the level of debt.

Assets purchased under the TFS and TFSME fall outside the boundary of public sector net debt excluding public sector banks (PSND ex). Those users who are interested in wider measures of the public sector balance sheet may find estimates of public sector net financial liabilities (PSNFL) of interest.

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.

The coronavirus (COVID-19) pandemic has had a substantial impact on both tax receipts and expenditure. These impacts are likely to be revised further as the full effects of the coronavirus pandemic on the public finances continue to become clearer.

Revisions to net borrowing in April 2021

Since our last publication (25 May 2021), we have reduced our estimate of borrowing in April 2021 by £2.6 billion.

Central government borrowing reduced by £1.3 billion largely because of a £1.9 billion reduction in our previous estimate of net capital investment spending, partially offset by a smaller £0.8 billion increase in day-to-day (current) spending. Further, improved data from our suppliers have increased our estimates of central government current receipts by £0.2 billion.

Local government borrowing reduced by £1.2 billion, largely because of a £1.1 billion increase in grants received from central government. While these additional grants reduced local government borrowing, the additional central government expenditure increased central government borrowing by an equal and offsetting amount, having no overall impact on public sector borrowing.

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

Since our last publication (25 May 2021), we have reduced our estimate of borrowing in FYE March 2021 by £1.1 billion.

Central government borrowing reduced by £1.5 billion largely because of an increase of £0.8 billion in tax receipts data from our suppliers along with a reduction of £0.4 billion in our previous estimate of net capital investment spending. Overall day-to-day (current) spending was largely unchanged, with increases in debt interest and net social benefits being almost entirely offset by a reduction in expenditure on goods and services.

Local government borrowing increased by £1.0 billion largely because of including provisional capital spending outturn data for England. These data led to an increase in net capital investment spending of £1.4 billion, largely in gross fixed capital formation.

The revisions to the components of central and local government borrowing are summarised in Public sector finances tables 1 to 10: Appendix A.

Public corporations’ borrowing remains based on Office for National Statistics (ONS) estimates. This month we have updated our estimates for January to March 2021 based on data received from the Ministry of Housing, Communities and Local Government (MHCLG), HM Treasury and other survey data, resulting in an overall reduction of £0.6 billion compared with our previous estimate.

Revisions to public sector net debt

This month we have reduced our previous estimate of the level of debt at the end of April 2021 by £0.2 billion from that published on 25 May 2021. This change is largely the result of several smaller updates to local government and public corporations’ contribution to debt, which are fully updated on a quarterly basis.

The revisions to our debt aggregates are presented in 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).

Public sector current expenditure

Current expenditure measures reflect the cost of the public sector’s day-to-day activities. For example, in the case of central government these include:

• providing services and grants (for example, related to education, defence, and health and social care) – including the current job furlough schemes
• payment of social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay)
• payment of the interest on the government’s 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 current budget deficit

Public sector current budget is the difference between revenue (mainly from taxes) and current expenditure, on an accrued (or national accounts) basis; it is the gap between current expenditure and current receipts (having taken account of depreciation). The current budget is in surplus when receipts are greater than expenditure.

Public sector net investment

Public sector net investment is the sum of all capital spending, mainly net acquisitions of capital assets and capital grants, less the depreciation of the stock of capital assets.

Public sector net borrowing

Public sector net borrowing excluding public sector banks (PSNB ex) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment (capital spending less 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 the government’s activities. This can be close to borrowing (the deficit) for the same period; however, there are some transactions, for example, loans to the private sector, that need to be financed but do not contribute to the deficit. It is also 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, largely as a result of issuing gilts and Treasury Bills, minus the amount of cash and other short-term assets it holds. PSND is often referred to by commentators as “the national debt”.

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).

The reported position of debt, and to a lesser extent borrowing, would be distorted by the inclusion of NatWest Group’s balance sheet (and transactions). This is because the government does not need to borrow to fund the debt of NatWest Group, nor would surpluses achieved by NatWest Group be passed on to the government, other than through any dividends paid as a result of the government equity holdings.

Other important terms commonly used to describe public sector finances are listed in the Public sector finances glossary.

Office for Statistics Regulation publishing review

The Office for Statistics Regulation (OSR) is undertaking a review into whether the 9:30am release time stated in the Code of Practice for Statistics meets the needs of users. During the pandemic, exemptions were granted to allow the release of market sensitive statistics at 7:00am.

The OSR welcomes views about the release time of official statistics by Friday 25 June 2021, please send comments to: regulation@statistics.gov.uk.

Methodological guidance

The Monthly statistics on the public sector finances: a methodological guide provides comprehensive contextual and methodological information concerning the monthly public sector finances statistical bulletin. The guide sets out the conceptual and fiscal policy context for the bulletin, identifies the main fiscal measures, and explains how these are derived and interrelated.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Public sector finances QMI.

Comparisons 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 both spring and autumn.

Estimating monthly gross domestic product (GDP)

Estimates of GDP used to present debt and other headline measures are partly based on provisional and official forecast data. Our May 2021 estimate of monthly GDP requires data across five quarters of GDP. Of these, two are based on the latest data published by the Office for National Statistics (ONS) (12 May 2021) and three are based on the latest official forecasts published by OBR (3 March 2021).

Local government and public corporations

Both local government and public corporations’ data in the most recent periods are initial estimates, largely based on the Budget Responsibility (OBR) Economic and fiscal outlook (EFO) – March 2021, with adjustments being applied as needed.

In recent years, planned 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 FYE 2020, we include a £0.2 billion downward adjustment to Wales’ capital expenditure.

For FYE 2021 we include:

• a £0.7 billion downward adjustment to Scotland’s capital expenditure
• a £0.2 billion downward adjustment to Wales’ capital expenditure
• an £8.5 billion upward adjustment to England’s current expenditure on goods and services, as the budget forecasts on which these are based were prepared before the coronavirus (COVID-19) pandemic

We apply a further £1.0 billion downward adjustment to budget forecast current expenditure on benefits in FYE 2021, to reflect the most recently available data for housing benefits.