The monthly public sector finances for August 2022, released on Wednesday 21 September 2022, reported a provisional deficit for the month of £12bn, compared with a deficit of £3bn in the previous month and a deficit of £14bn for the same month last year.
Public sector net debt was £2,428bn, or 96.6% of GDP, at the end of August, up £55bn from £2,373bn at the end of March 2022. This is £608bn higher than the £1,820bn equivalent on 31 March 2020, reflecting the huge sums borrowed over the course of the pandemic.
Current and prior period numbers have been revised for changes in methodology, the most significant of which was to record £21bn of central government leases within net debt following the adoption of IFRS 16 in departmental accounts with effect from 1 April 2022.
The cumulative deficit for the first five months of the 2022/23 financial year was £58bn, £22bn lower than this time last year and £122bn lower than the previous year during the first stages of the pandemic, but £30bn more than the deficit of £28bn for first five months of 2019/20, the most recent pre-pandemic comparative period.
Tax and other receipts in the first five months to 31 August amounted to £392bn, £40bn higher than a year previously. This included more in income tax receipts from higher wages, extra national insurance receipts from the rate rise from the start of the financial year and higher VAT receipts as retail prices have increased due to inflation.
Expenditure excluding interest and investment for the five months of £382bn was £5bn lower than the same period last year, with spending increases announced in last year’s Spending Review together with previously announced support for households to help with their energy bills offsetting most of the reduced spending on the pandemic (including furlough programmes) that was incurred in the same period last year.
Interest charges of £53bn were recorded for the five months, £24bn or 81% higher than the £29bn in the equivalent period in 2021, with inflation driving up the cost of RPI-linked debt in addition to the effect of higher interest rates.
Cumulative net public sector investment was £15bn. This is £1bn lower than a year previously, potentially indicating a slowdown in capital programmes given that the Spending Review 2021 had pencilled in significant increases in capital expenditure budgets for the current year.
The increase in net debt of £55bn since the start of the financial year comprises the deficit for the five months of £58bn less £3bn in net cash inflows, as repayments of taxes owed and loans made to businesses during the pandemic exceeded outflows to fund student loans, other lending and working capital movements.
Alison Ring OBE FCA, Public Sector and Taxation Director for ICAEW, said: “The deficit in August was higher than expected as debt interest costs continue to rise, painting a bleak picture for the country’s public finances as the economy stalls.
“Today’s numbers do not reflect the Prime Minister's energy market intervention, which will add tens of billions of pounds to borrowing in the second half of the financial year, even before any tax cuts that may be announced. Worryingly, net debt is now expected to exceed an eye-watering £2.5trn by the end of the year, compared with £1.8trn in March 2020. This makes the public finances even more vulnerable to future economic shocks and may put off by several years the point at which the debt to GDP ratio starts to fall.
“With the pound under pressure, Chancellor Kwasi Kwarteng will be hoping that debt investors respond positively to his plans to borrow more to slash taxes, support households and businesses through the energy crisis, and increase defence spending. A negative reaction could see the Bank of England raise interest rates by even more than anticipated tomorrow, adding to the nation’s fiscal woes and limiting the scope for further action over the next couple of years.”
Public sector finances: trends
|Net debt / GDP||79.5%||95.4%||94.7%||96.6%|
Source: ONS, ‘Public sector finances, August 2022’.
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 several revisions to prior period fiscal numbers to reflect revisions to estimates as well as changes in methodology. These had the effect of reducing the reported fiscal deficit for the four months ended 31 July 2022 by £9bn from £55bn to £46bn and the reported fiscal deficit for the 12 months to March 2022 by £10bn from £144bn to £134bn.
Public sector net debt at 31 March 2022 was revised up by £31bn from £2,342bn to £2,373bn, comprising £29bn in methodology changes (of which £21bn related to central government leases) and £2bn in revisions to estimates. Local government leases are not included in these revisions as local authorities have a longer period in which to adopt IFRS 16.
For further information, read the public sector finances release for August 2022.
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