26 January 2021: The UK reported a £34.1bn deficit in December, bringing the total shortfall over nine months to £270.8bn. Public sector net debt has increased by £333.5bn to reach an all-time high of £2.13trn.

The latest public sector finances reported a deficit of £34.1bn in December 2020, a cumulative total of £270.8bn for the first nine months of the financial year. This is £212.7bn more than the £58.1bn recorded for the same period last year.

Falls in VAT, corporation tax and income tax and the waiver of business rates drove lower receipts, while large-scale fiscal interventions have resulted in much higher levels of expenditure. Net investment is greater than last year, as planned, while the interest line has benefited from ultra-low interest rates.

Public sector net debt increased to £2,131.7bn or 99.4% of GDP, an increase of £333.5bn from the start of the financial year and £325.7bn higher than in December 2019. This reflects £62.7bn of additional borrowing over and above the deficit, most of which has been used to fund coronavirus loans to business and tax deferral measures.

Public sector finances: month and nine months ended 31 December 2020

	Month of Dec 2020 £bn	Variance vs last year		9 months to Dec 2020 £bn	Variance vs last year
		£bn	%		£bn	%
Receipts	66.9	(0.8)	-1%	556.1	(42.1)	-7%
Expenditure	(93.5)	(27.1)	+41%	(760.5)	(174.6)	+30%
Interest	(2.0)	1.3	-39%	(31.7)	12.0	-27%
Net investment	(5.5)	(1.6)	+41%	(34.7)	(8.0)	+30%
Deficit	(34.1)	(28.2)	+478%	(270.8)	(212.7)	+366%
Other borrowing	2.2	5.5	-167%	(62.7)	(80.2)	-458%
Change in net debt	(31.9)	(22.7)	+247%	(333.5)	(292.9)	+721%
Public sector net debt				2,131.7	325.7	+18%
Public sector net debt / GDP				99.4%	15.3%	+18%

^{Source: ONS, ‘Public sector finances, December 2020'.}

 

The combination of receipts down 7%, expenditure up 30% and net investment up 30% has resulted in a deficit for the three quarters to December 2020 that is almost five times as much as the budgeted deficit of £55bn for the whole of the 2020-21 financial year set in the Spring Budget in March, despite interest charges being lower by 27%. 

Cash funding (the ‘public sector net cash requirement’) for the month was £37.8bn, bringing the cumulative total this financial year to £333.6bn, compared with £30.6bn for the same nine-month period in 2019.

Interest costs have fallen despite much higher levels of debt, with extremely low interest rates benefiting both new borrowing to fund government cash requirements and the refinancing of debts falling due for repayment.

The deficit remains on track to approach the Office for Budget Responsibility’s November forecast of £393.5bn for the financial year to March 2021 once anticipated bad debts on coronavirus loans are recognised.

There is a potential that the deficit could be even higher given the return to a national lockdown in the first quarter and disruption in international trade following the end of the EU transition period. This could also depress prospects for GDP growth in 2021.

Public sector finances: nine months ended 31 December 2020

	Receipts £bn	Expenditure £bn	Interest £bn	Net investment £bn	Fiscal deficit £bn
April 2020	56.7	(92.5)	(5.5)	(5.9)	(47.2)
May 2020	56.1	(93.8)	(3.7)	(1.8)	(43.2)
June 2020	59.5	(82.7)	(2.9)	(1.9)	(28.0)
July 2020	65.3	(81.0)	(2.5)	(2.5)	(20.7)
August 2020	62.8	(80.1)	(3.6)	(2.9)	(23.8)
September 2020	62.9	(78.6)	(5.0)	(7.0)	(27.7)
October 2020	62.8	(77.3)	(2.2)	(3.3)	(20.0)
November 2020	63.1	(81.0)	(4.3)	(3.9)	(26.1)
December 2020	66.9	(93.5)	(2.0)	(5.5)	(34.1)
9 months to December 2020	556.1	(760.5)	(31.7)	(34.7)	(270.8)

^{Source: ONS, ‘Public sector finances, December 2020'.}

 

Public sector finances: nine and twelve months ended 31 December 2019 and 31 March 2020

	Receipts £bn	Expenditure £bn	Interest £bn	Net investment £bn	Fiscal deficit £bn
April 2019	65.7	(64.5)	(6.8)	(4.9)	(10.5)
May 2019	63.5	(63.8)	(3.8)	(1.3)	(5.4)
June 2019	65.9	(63.2)	(7.9)	(1.7)	(6.9)
July 2019	74.3	(65.7)	(5.0)	(2.5)	1.1
August 2019	66.1	(64.5)	(4.3)	(2.4)	(5.1)
September 2019	67.0	(66.7)	(2.9)	(5.5)	(8.1)
October 2019	63.9	(66.4)	(7.0)	(2.2)	(11.7)
November 2019	64.1	(64.7)	(2.7)	(2.3)	(5.6)
December 2019	67.7	(66.4)	(3.3)	(3.9)	(5.9)
9 months to December 2019	598.2	(585.9)	(43.7)	(26.7)	(58.1)
January 2020	87.5	(67.4)	(4.5)	(6.0)	9.6
February 2020	70.8	(64.0)	(4.8)	(3.4)	(1.4)
March 2020	71.7	(70.3)	(1.6)	(6.9)	(7.1)
12 months to March 2020	828.2	(787.6)	(54.6)	(43.0)	(57.0)

^{Source: ONS, ‘Public sector finances, December 2020'.}

 

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled.

The ONS made a number of revisions to prior month and prior year fiscal numbers to reflect revisions to estimates and changes in methodology. These had the effect of reducing the reported fiscal deficit in the first eight months from £240.9bn to £236.7bn and the reported deficit for 2019-20 from £57.4bn to £57.0bn.

Commenting on the latest public sector finances for December 2020, Alison Ring OBE FCA, public sector director at ICAEW, said: “Public sector net debt has increased by £333bn since the start of the financial year, as spending accelerated in December, raising concerns that COVID-related expenditure forecasts will need to be revised upwards yet again.

“With the lockdown expected to extend through much of the final quarter of this financial year, the scale of the challenge facing the Chancellor continues to mount ahead of the Budget on 3 March.”

For further information, read the public sector finances release for December 2020.

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