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Public finances end financial year in weak position

Author: ICAEW Insights

Published: 24 Apr 2024

Net debt represents a growing fiscal mortgage of £92,000 per UK household as a difficult financial year comes to a close.

The monthly public sector finances for March 2024 released by the Office for National Statistics (ONS) on Tuesday 23 April 2024 reported a provisional deficit for the month of £12bn, while at the same time revising the year-to-date deficit up by £2bn. 

This increased the cumulative deficit for the full financial year to £121bn, £7bn less than in the same period last year. However, this is £7bn more than the £114bn full-year estimate made by the Office for Budget Responsibility (OBR) in its latest fiscal forecasts that accompanied the Spring Budget 2024 in March. 

At 4.4% of GDP, the fiscal deficit is significantly higher than the Chancellor’s fiscal target of 3% of GDP.

Total receipts were £1,095bn or 39.8% of GDP, while total managed expenditure amounted to £1,216bn or 44.2% of GDP, with the latter including £104bn or 4.2% of GDP in debt interest. Public sector net debt on 31 March 2024 was provisionally reported to be £2,694bn or 98.3% of GDP.

These numbers are equivalent to a provisional deficit of approximately £4,200 per household in 2023/24, comprising total receipts of £37,700 per household less total managed expenditure of £41,900 per household, including £3,600 in debt interest. Public sector net debt on 31 March 2024 was equivalent to just over £92,000 per household.

Alison Ring OBE FCA, ICAEW’s Director of Public Sector and Taxation, said: “Now standing at approximately £92,000 per household, public sector net debt continues to represent a growing fiscal mortgage that the nation is required to service. Debt interest alone is a sizeable contributor to the deficit, at £3,600 per household or 9% of total spending in 2023/24.

“Overall, the data shows that the net amount owed by the government reached £2,694bn, which was close to the size of the entire UK economy at the end of March, hitting 98.3% of GDP. In addition, the deficit for the year was significantly higher than the government’s fiscal target of 3% of GDP, at a provisional £121bn or 4.4% of GDP.

“As we approach a general election that is likely to focus on the state of the economy and the quality of public services, the weak state of the public finances at the start of the new financial year provides a shaky foundation for both main political parties as they finish writing their manifestos.” 

Month of March 2024

Taxes and other receipts amounted to £99bn in March 2024, up 8% compared with the same month last year, while total managed expenditure was 2% higher at £111bn reflecting lower interest charges and energy support payments in the comparative period. The resulting fiscal deficit of £12bn for the month was £5bn lower than in March 2023. 

Public sector net debt as of 31 March 2024 was £2,694bn or 98.3% of GDP, £27bn or 1.8 percentage points higher than at the start of the month and £154bn or 2.6 percentage points higher than at the start of the financial year.

Twelve months to March 2024

The provisional deficit for the 2023/24 financial year to March 2024 was £121bn, £7bn less than the amount reported for 2022/23. This reflected a shortfall between tax and other receipts of £1,095bn and total managed expenditure of £1,216bn, up 6% and 5% respectively compared with the corresponding numbers for 2021/22.

Inflation benefited tax receipts compared with the previo
us year, with income tax up 10% to £276bn and VAT up 6% to £198bn. Corporation tax receipts were up 19% to £103bn, partly reflecting the increase in the corporation tax rate from 19% to 25% from 1 April 2023, while national insurance receipts were up by just 1% to £180bn as the abolition of the short-lived health and social care levy in 2022/23 offset the effect of wage increases in the current financial year, in addition to the cut in employee national insurance implemented in January. 

Council tax receipts were up 5% to £42bn, but stamp duty on properties was down by 23% to £13bn, while the total for all other taxes was up by just 2% at £168bn as economic activity slowed. Non-tax receipts were up 10% to £115bn, primarily driven by higher investment income and higher interest charged on student loans.

Total managed expenditure of £1,216bn in the financial year to March 2024 can be analysed between current expenditure excluding debt interest of £1,042bn, debt interest of £104bn and net investment of £70bn, compared with £1,157bn in the same period in the previous year, comprising £998bn, £113bn and £46bn respectively.

The increase of £44bn or 4% in current expenditure to £1,042bn excluding debt interest was driven by a £36bn increase in pension and other welfare benefits (including cost-of-living payments), £21bn in higher central government pay, and £12bn in additional central government procurement spending, less £21bn in lower subsidy payments (principally relating to energy support schemes) and £4bn in net other changes.

The fall in interest costs for the 12 months of £9bn or 8% to £104bn comprises a £32bn or 62% reduction to £20bn for interest accrued on index-linked debt as the rate of inflation fell, partially offset by a £23bn or 38% increase to £84bn from higher interest rates on variable-rate debt and new and refinanced fixed-rate debt.

The £24bn increase in net investment spending to £70bn in the 2023/24 financial year is distorted by a one-off credit of £10bn arising from changes in interest rates and repayment terms of student loans recorded in the previous financial year. Adjusting for that credit, the increase of £14bn reflects high construction cost inflation among other factors that led to a £19bn or 16% increase in gross investment to £135bn, less a £5bn or 8% increase in depreciation to £65bn.

Public sector finance trends: March 2024

12 months to Mar 2020 (£bn)  Mar 2021 (£bn)  Mar 2022 (£bn) Mar 2023 (£bn)   Mar 2024 (£bn)
 Receipts  828  792  921  1,029  1,095
 Expenditure  (806)  (1,008)  (935)  (998)  (1,042)
 Debt interest  (40)  (27)  (59)  (113)  (104)
 Net investment  (43)  (72)  (54)  (46)  (70)
 Deficit  (61)  (315)  (127)  (128)  (121)
 Other borrowing  23  (22)  (102)  (31)  (33)
 Debt movement  (38)  (337)  (229)  (159)  (154)
 Net debt  1,815  2,152  2,381  2,540  2,694
 Net debt/GDP  85.2%  96.5%  96.6%  95.7%  98.3%

The cumulative deficit of £121bn for the financial year is £3bn lower than the OBR’s November 2023 forecast of £124bn but £7bn more than the £114bn full-year estimate for 2023/24 in its March 2024 forecast.

The OBR’s March 2024 forecast predicts an £87bn deficit in the next financial year commencing in April (2024/25), a reduction of more than a quarter compared with the current financial year.

Balance sheet metrics

Public sector net debt was £2,694bn at the end of March 2024, equivalent to 98.3% of GDP.

This is an increase since the start of the financial year of £154bn, comprising borrowing to fund the deficit for the 12 months of £121bn plus an additional £33bn of borrowing to fund lending to students, businesses and others, net of loan repayments and working capital movements.

Public sector net debt is £879bn more than the £1,815bn reported for 31 March 2020 at the start of the pandemic and £2,159bn more than the £535bn number as of 31 March 2007 before the financial crisis, reflecting the huge sums borrowed over the last couple of decades.

Public sector net worth, the new balance sheet metric launched by the ONS in 2023, was -£709bn on 31 March 2024, comprising £1,596bn in non-financial assets and £1,055bn in non-liquid financial assets minus £2,694bn of net debt (£300bn liquid financial assets - £2,994bn public sector gross debt) and other liabilities of £666bn. This is a £96bn deterioration from the -£613bn reported for 31 March 2023.

Revisions and other matters

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. 

In the latest release, it revised the reported deficit for the 11 months to February 2024 up by £2bn as estimates of tax receipts and expenditure were updated with better data, and changed the calculation of the public sector net debt to GDP ratio as at 29 February 2024 from 97.1% to 97.5% as estimates for both public sector net debt and GDP were updated.

Per household calculations are based on a projected population of 68.5 million in the UK during 2023/24 and 68.9 million on 31 March 2024 and an estimated average number of people per household of 2.36, to give an estimate of 29 million households during 2023/24 and 29.2 million households on 31 March 2024.

For further information, read the public sector finances release for March 2024.

ICAEW has recently published an in-depth Fiscal Insight on the Spring Budget 2024. Further coverage of the Spring Budget 2024 can be found at icaew.com/budget.

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