Public sector finances, UK: September 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: September 2022

• Public sector finances borrowing by sub-sector dataset

• UK government debt and deficit: March 2022

• Public sector net borrowing excluding public sector banks (PSNB ex) was £20.0 billion in September 2022, which was £2.2 billion more than in September 2021 and the second highest September borrowing since monthly records began in 1993, being £8.2 billion lower than in September 2020 at the height of the coronavirus (COVID-19) pandemic.

• Central government current (or day-to-day) expenditure was £79.3 billion in September 2022, which was £5.8 billion more than in September 2021; this largely reflected a £2.5 billion increase in debt interest payable, and a £4.4 billion increase in net social benefit payments being partially offset by a £1.4 billion reduction in subsidy payments.

• Central government debt interest payable was £7.7 billion in September 2022, which was £2.5 billion more than in September 2021 and the highest September figure since monthly records began in April 1997; the volatility in interest payable is largely because of the effect of Retail Prices Index (RPI) changes on index-linked gilts.

• Central government receipts were £71.2 billion in September 2022, which was £7.0 billion more than in September 2021; of this, tax receipts were £52.0 billion, which was £4.5 billion more than in September 2021.

• PSNB ex was £72.5 billion in the financial year to September 2022; this was £24.9 billion less than in the same period last year but £35.6 billion more than in the financial year to September 2019, before the coronavirus pandemic.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £13.7 billion in September 2022, which was £0.9 billion less than in September 2021; this brought the total to £43.1 billion in the financial year to September 2022.

• Public sector net debt excluding public sector banks (PSND ex) was £2,450.2 billion at the end of September 2022, or around 98.0% of gross domestic product (GDP), which was an increase of £213.0 billion or 2.5 percentage points of gross domestic product (GDP) compared with September 2021.

• Public sector net debt excluding public sector banks and the Bank of England (PSND ex BoE) was £2,128.7 billion at the end of September 2022, or around 85.1% of GDP, which was an increase of £120.8 billion but a reduction of 0.6 percentage points of GDP compared with September 2021.

In September 2022, initial estimates show that the public sector spent more than it received in taxes and other income. This required it to borrow £20.0 billion, which was £5.2 billion more than the £14.8 billion forecast by the Office for Budget Responsibility (OBR).

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 September 2022 were estimated to have been £71.2 billion, which was £7.0 billion more than in September 2021. Of these receipts, tax revenue increased by £4.5 billion to £52.0 billion.

Energy profits levy

This month we have included estimates for the Energy Profits Levy (EPL), a new levy on the profits of oil and gas companies, for the first time. For more information, see GOV.UK's Energy Profits Levy Factsheet - 26 May 2022. Classified as a tax on the profits of oil and gas companies operating in the UK and the UK Continental Shelf, EPL receipts are recorded as a sub-component of corporation tax, increasing each of our previously published estimates by £0.7 billion in each month from June 2022 to date on an accrued basis.

Central government expenditure

Central government bodies spent £79.3 billion on current (or day-to-day) expenditure in September 2022, which was £5.8 billion more than in September 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).

In September 2022, the interest payable on central government debt was £7.7 billion, of which £4.7 billion reflected 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 September 2022, we reference the RPI movement between June and July 2022. 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.

Net social benefits

In September 2022, net social benefit payments were £25.7 billion, £4.4 billion more than in September 2021. This increase was largely because of an increase in cost-of-living payments, chiefly enhanced Winter Fuel Payments that are recorded each September to be paid out during November and December.

Subsidies

In September 2022, subsidies paid by central government were £2.5 billion, £1.4 billion less than in September 2021. This reduction is largely because of the ending of payments related to the job support schemes paid during the coronavirus pandemic period.

Public sector net borrowing excluding public sector banks (PSNB ex) was £72.5 billion in the financial year (FY) to September 2022, £24.9 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 September 2022 were £436.4 billion, which was £53.1 billion more than a year earlier. Of these, tax receipts were £319.8 billion, which was £35.8 billion more than in the FY to September 2021.

Central government expenditure

Central government bodies spent £466.5 billion on current (or day-to-day) expenditure in the FY to September 2022, which was £11.1 billion more than in the same six-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 £133.3 billion in the financial year ending (FYE) March 2022. This was £5.5 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 the £312.6 billion borrowed in the 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 15.0%, which was the highest for 75 years. Our latest estimates indicate that this ratio fell by 9.3 percentage points to 5.7% 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.

Public sector net debt excluding public sector banks (PSND ex) was £2,450.2 billion at the end of September 2022, which was an increase of £213.0 billion compared with September 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 September 2022 to 98.0% of GDP.

Debt is largely made up of gilts (or bonds) issued to investors by central government. Of the £2,056.4 billion gilts in circulation at the end of September 2022:

• £1,506.8 billion are conventional gilts that pay a fixed interest rate

• £549.6 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).

Our measure of public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Standing at £2,128.7 billion at the end of September 2022 (or around 85.1% of GDP), PSND ex BoE was £321.5 billion (or 12.9 percentage points of GDP) less than PSND ex.

Quantitative easing

On 28 September 2022, the BoE announced an intervention in the market in order to maintain financial stability through the temporary purchase of long-dated UK government bonds (gilts). As these gilt market operations are very similar to those used by the BoE in its quantitative easing, we have recorded these additional temporary gilt holdings within our APF estimates.

The APF's gilt holdings currently stand at £730.7 billion (at redemption value), a reduction of £1.0 billion compared with  August 2022. This change was a result of a £5.8 billion redemption of gilts held by the APF that was partially offset by the purchase of £4.9 billion of gilts under its temporary holdings of long-dated UK government bonds scheme. For more information on their market operations, see the Bank of England's Results and usage data.

It is important to understand that this £730.7 billion (conventional) gilt holding is not recorded directly as a component of public sector net debt. Instead, in September 2022, we record the £110.8 billion difference between the £841.5 billion of reserves created to purchase gilts (at market value) and the £730.7 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.

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 £2,126.5 billion at the end of September 2022 (or around 85.0% of GDP), which was £323.7 billion (or 13.0 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.

Methodology improvements 

In September 2022, we introduced a simpler accruals method for the Climate Change Levy on a national accounts (accrued) basis, covering financial year ending (FYE) March 2021 and the financial year to July 2022, with minimal impact on public sector net borrowing.

This month, we have extended this change to cover the FYE March 2013 to March 2020. As a result, we have increased public sector net borrowing by around £0.2 billion across the whole eight-year period. The effect was heavily concentrated in the FYE March 2020, where a reduction of accrued Climate Change Levy receipts has increased net borrowing by £0.1 billion, largely because of the resolution of data quality issues associated with the impact of coronavirus (COVID-19).

There was no change to the underlying cash data as a result of this work.

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

Since our last public sector finances publication on 21 September 2022, we have reduced our estimate of borrowing in the financial year-to-August 2022 by £5.8 billion.

This change was largely a result of an increase of £3.9 billion to our previous estimation of corporation tax receipts. Of this increase, £2.1 billion was the result of the inclusion of the Energy Profits Levy for the first time and £1.8 billion was because of higher than anticipated September (quarterly) cash receipts from larger businesses.

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

Since our last public sector finances publication on 21 September 2022, we have reduced our estimate of public sector borrowing in the FYE March 2022 by £0.4 billion. This is again because of higher than anticipated September 2022 (quarterly) cash receipts from larger businesses increasing our previous estimates of corporation tax.

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

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

Our estimate of debt at the end of August 2022 remains largely unchanged since our previous Public sector finances, UK bulletin on 21 September 2022, being reduced by £0.2 billion largely because of updated cash data held by the Asset Purchase Facility Fund.

Revisions to gross domestic product (GDP)

This month, we updated our estimates of GDP used in our public sector net debt ratio to reflect the GDP quarterly national accounts, UK published by the Office for National Statistics (ONS) on 30 September 2022.

Largely as a result of these new data, we have increased our estimate of the level of public sector net debt excluding public sector banks (PSND ex) at the end of March 2022 expressed as a ratio of GDP by 1.0 percentage points. Similarly, we have increased our estimate of public sector net borrowing (excluding public sector banks) in the FYE March 2022 by 0.1 percentage points.

The revisions to our debt aggregates are presented in our Public sector finances tables 1 to 10: Appendix A.

In accordance with our transparency strategy and to provide predictability to users, where possible, we aim to package together methodological changes at a single point in the year.

Our Recent and upcoming changes to public sector finance statistics: August 2022 article, explains the changes introduced in September 2022 in some detail. These included improvements in the recording of:

• public corporations' data

• central government leases

• national non-domestic rates

These methodology changes were accompanied by our regular annual data updates, including improvements to our previously published capital consumption, public sector pensions, Pool Reinsurance (Pool Re), and student loans data.

Estimates of how our developments have affected the fiscal aggregates are presented in Changes to public sector finance statistics: Appendix L.

Public sector

In the UK, the public sector consists of six sub-sectors: central government, local government, public non-financial corporations, public sector (funded) pensions, the Bank of England (BoE) and public financial corporations (or 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 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 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 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). PSNB ex 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".

Comparing our data with official forecasts

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

On 10 October 2022, the Chancellor commissioned the OBR's autumn forecast for 31 October 2022, with accompanying monthly profiles likely to follow in November 2022. Following the publication of these data, we will update our forecast based estimates and presentations at the earliest opportunity.

Energy policy announcements

In 2022, the UK government has announced several plans to manage the cost of energy for households and business across the UK. These schemes are discussed in our Recent and upcoming changes to public sector finance statistics: September 2022 article.

Energy Bills Support Scheme

The Energy Bills Support Scheme (EBSS) is a government scheme giving households in Great Britain (with a domestic electricity contract) £400 towards the cost of their energy bills.

On 31 August 2022, the Office for National Statistics (ONS) announced that the EBSS has been classified as a current transfer payment from government to households.

This additional central government expenditure will increase public sector net borrowing over a six-month period between October 2022 and March 2023.

Energy Price Guarantee schemes

In September 2022, the UK government announced a number of new plans to help manage the cost of energy prices. These include the Energy Price Guarantee (EPG) for households and the Energy Bill Relief Scheme (EBRS) for businesses across the UK.

As announced in the classifications Forward work plan published on 30 September 2022, and the publication of the government's updated Energy Bills Support Factsheet on 12 October 2022, the ONS plans to complete its classification assessment of the EPG and EBRS during October 2022.

Once the classification review of the EPG and EBRS has been completed, the ONS will consider whether they affect inflation statistics. If so, the ONS will consider how the treatment can be consistently incorporated into those statistics. Further information about this aspect will be announced on 31 October 2022. This is the same day that the classification decisions will be updated and published in the latest update section of the Public sector classification guide.

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 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.

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.

Tax receipts

In the most recent months, tax receipts recorded on an accrued basis are subject to some uncertainty. This is because many taxes such as value added tax (VAT), corporation tax and Pay As You Earn (PAYE) income tax contain some forecast cash receipts data and are liable to revision when actual cash receipts data are received.

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

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) 2022, we include:

• 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 £2.0 billion downward adjustment to budget forecast current expenditure on benefits in the FYE 2022, to reflect the most recently available data for housing benefits.

For the FYE 2023, we include:

• a £0.8 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 £1.8 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 Office for Budget Responsibility (OBR)'s Economic and fiscal outlook - March 2022, with adjustments being applied as needed.

Office for National Statistics (ONS), released 21 October 2022, ONS website, statistical bulletin, Public sector finances, UK: September 2022