Spending by the UK Government accounts for 22% of GDP (2012) and expenditure on services (like benefits and health) affect people’s day to day lives, as does the collection of taxes which feed into government revenue (receipts). The current budget is the difference between what the government receives in income and what it spends, and plays a large part in determining the net borrowing position of government (public sector net borrowing). In this analysis, the term government covers the entire public sector.
The current budget and net investment together make up the net borrowing position as shown in the graphic. Most of the time, when the current budget is in deficit the Government (public sector) needs to borrow in order to meet its financial obligations. The public sector current budget was in deficit by £9.5 billion in December 2013. Net investment by the public sector was £2.5 billion which meant that net borrowing was for December was £12.1 billion.
How has the budget deficit changed over time?
For each 12 month period between 1998 and 2002, the budget was in ‘surplus’, which meant that income received by government (mainly taxes) was greater than expenditure. However since 2002, the Government’s income has been lower than its expenditure on a 12 month rolling basis, meaning the current budget was in deficit. The size of this gap was smaller leading up to 2008 but the economic contraction (of GDP) throughout 2008 and the lower economic growth since have affected tax revenues.
Both income taxes (e.g. PAYE) and taxes on production (e.g. VAT) are dependent on the economic activities of employment and consumption. For instance, lower employment and/or consumption of goods and services may lead to lower tax revenues. However, expenditure by the public sector on the services which government provide, like social benefits and health, may not fall as they continue to be demanded by people. The budget deficit has reduced since 2010; this has coincided with increased UK economic growth and government tax revenue whilst at the same time government department’s expenditure has flattened out.
Figure 1: Public Sector Current Budget (excluding financial interventions) – sum of rolling 12 months, £ Millions
Has the current budget deficit reduced?
In figure 1 it can be seen that since 2010 the rolling 12 month deficit has reduced (apart from during 2012). What complicated the picture was the inclusion in 2013 of something called the Bank of England Asset Purchase Facility Ltd (APF) because it transferred the profits it had made back to government. However, figure 1 shows the 12 month rolling sum of the current budget reduced in 2013 when the APF is excluded.
Why do government spending and receipts vary?
Levels of receipts and expenditure vary on a monthly basis because of regular cycles in the timing of income and expenditure through the year, and inherent volatility of the economy; this can be seen in the chart. For example, tax receipts related to corporation tax are highest in April, July, October and January, while income taxes from self-assessment predominantly arrive in January and February. Some important components of public sector spending vary on a monthly basis. Net social benefits paid by DWP are higher in November, when winter fuel payments are made. Interest paid on debt is affected by changes in the monthly Retail Prices Index. Also, government department spending is historically higher towards the end of the financial year.
Figure 2: Public Sector Current Budget (excluding financial interventions) – monthly, £ Millions
Where can I find out more about the UK public sector finances (government borrowing and debt)?
These statistics were analysed by Gareth Clancy at ONS. The analysis is based on data published in the monthly Public Sector Finances statistical bulletin. If you would like to find out more about the latest public sector finance statistics, you can read how they are produced at on the ONS Guidance and Methodology page. If you have any comments or suggestions, we would like to hear them. Please email us at: firstname.lastname@example.org