The monthly public sector finances for March 2023 released by the Office for National Statistics (ONS) on Tuesday 25 April 2023 reported a provisional deficit for the 2022/23 financial year of £139bn. This is the fourth highest on record after £313bn in 2020/21, the first year of the pandemic, £160bn in 2009/10 and £142bn in 2010/11 during the financial crisis.
Alison Ring OBE FCA, Public Sector and Taxation Director for ICAEW, said: “Today’s data for the financial year to March 2023 emphasises just how weak a state the public finances are in, with debt now approaching an eye-watering £90,000 per household. The UK is still running big fiscal deficits, with a provisional shortfall between receipts and spending of £139bn in 2022/23, while public debt over the past three financial years has grown by £715bn or almost 40% to £2,530bn.
“The UK government’s financial position remains precarious, with high debt and limited headroom against its fiscal rules that reduce our resilience to future economic shocks. An ageing population, underperforming public services and a worsening global security situation are all putting pressure on government spending, even as taxes rise.
“What is most concerning is weak public investment after the government constrained spending to meet its short-term fiscal objectives, for example in scaling back HS2. Unfortunately, this will restrict economic growth in the medium and long term, and will also delay much-needed investment in the quality and cost efficiency of public services.”
The provisional shortfall in taxes and other receipts compared with total managed expenditure for the month of March was £21bn, £16bn more than the £5bn deficit reported for the last month of the previous financial year (March 2022). Higher interest costs, higher inflation on index-linked debt, and the cost of the energy price guarantee for households and businesses incurred during the month drove up the need to borrow, as well as a burst of capital expenditure recorded in the final month of the year.
The provisional deficit for the financial year of £139bn was £18bn more than the year before but £174bn lower than in 2020/21 during the first stages of the pandemic. It was £78bn more than the deficit of £61bn reported for the 2019/20 financial year, the most recent pre-pandemic pre-cost-of-living-crisis comparative period.
The provisional deficit is £13bn less than the £152bn estimated by the Office for Budget Responsibility (OBR) in its most recent economic and fiscal forecasts made at the time of the Spring Budget, but this difference is expected narrow as the outturn numbers are revised over the next few months by the ONS.
Public sector net debt
Public sector net debt was £2,530bn or 99.6% of GDP at the end of March 2023, which is £16bn below OBR’s March 2023 estimate of £2,546bn, but £77bn higher than their March 2022 forecast of £2,453bn.
The increase in net debt of £148bn from £2,382bn at the start of the financial year comprised borrowing to fund the deficit for the 12 months of £139bn plus £9bn in net cash outflows to fund working capital requirements and lending to students, businesses and others, less repayments of tax deferrals and loans made to businesses during the pandemic.
As previously mentioned, public sector net debt has increased by £715bn or just under 40% from £1,815bn on 31 March 2020 to £2,530bn at 31 March 2023, reflecting the huge sums borrowed since the start of the pandemic. This is equivalent to an increase from approximately £65,000 to just under £90,000 per household (based on estimated households in the UK of 27.9m and 28.3m respectively) and from around £27,000 to £37,000 per person in the UK (based on estimated population of 67m and 68m at 31 March 2000 and 2023 respectively).
Receipts and expenditure
Tax and other receipts in the 12 months to 31 March 2023 were provisionally reported to amount to £1,016bn, £96bn or 10% higher than in the previous year. This broadly reflects the combination of inflation and relatively weak economic growth before taking account of variations in individual taxes and other receipts.
Total managed expenditure provisionally amounted to £1,155bn, comprising expenditure excluding interest and investment of £976bn, interest of £127bn, and investment of £52bn.
Expenditure excluding interest and investment for the 12 months of £976bn was £58bn or 6% higher than in 2021/22, with Spending Review planned increases in spending, the effect of inflation and the cost of energy support schemes in the current year, offset by furlough programmes and other pandemic spending incurred in the previous year, not being repeated.
Interest charges of £127bn for the 12 months were £54bn or 74% higher than the £73bn reported in 2021/22, through a combination of higher interest rates and higher inflation driving up the cost of RPI-linked debt.
Net public sector investment to March was provisionally reported to amount to £52bn, which was £2bn more than in the previous financial years. Gross investment was £112bn before deducting depreciation of £60bn.
Public sector net worth
The ONS launched a new balance sheet measure this month: public sector net worth. This seeks to capture more assets and liabilities than the narrowly focused public sector net debt measure traditionally used to assess the financial position of the UK public sector.
According to the ONS, public sector net worth on 31 March 2023 was negative at -£606bn, comprising non-financial assets of £1,571bn, illiquid financial assets of £1,035bn less public sector net debt of £2,530bn and other financial liabilities of £682bn. (Public sector net debt comprises liquid financial assets of £306bn less currency and deposits of £1,298bn, gilts held by external parties of £1,378bn and other debt and securities of £160bn.)
This new measure is not the same as the net liabilities that will be reported in due course in the Whole of Government Accounts prepared under IFRS, as it excludes unfunded pension liabilities. These amounted to just over £2trn at 31 March 2020, although will be lower at 31 March 2023 because discount rates have risen.
Public sector finance trends
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. These had the effect of reducing the reported fiscal deficit for the 11 months ended 28 February 2023 by £14bn from £132bn to £118bn, and the reported fiscal deficit for the year ended 31 March 2022 by £1bn from £122bn to £121bn. The in-year revision primarily arose from a £10bn upward revaluation of the student loan portfolio that was backdated to December 2022
For further information, read the public sector finances release for March 2023.
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