Public sector finances, UK: September 2021

Other commentary from the latest public sector finances data can be found on the following pages:

• Recent and upcoming changes to public sector finance statistics: September 2021
• Public sector finances borrowing by sub-sector
• UK government debt and deficit: March 2021

• Public sector net borrowing excluding public sector banks (PSNB ex) was estimated to have been £21.8 billion in September 2021; this was the second-highest September borrowing since monthly records began in 1993, £7.0 billion less than in September 2020.

• Central government receipts in September 2021 were estimated to have been £62.3 billion, £6.2 billion more than in September 2020; while central government bodies spent £84.1 billion in September 2021, £1.3 billion less than in September 2020.

• PSNB ex was estimated to have been £108.1 billion in the financial year-to-September 2021; this was the second highest financial year-to-September borrowing since monthly records began in 1993, £101.2 billion less than in the same period last year.

• Public sector net debt excluding public sector banks (PSND ex) was £2,218.9 billion at the end of September 2021 or around 95.5% of gross domestic product (GDP); maintaining a level not seen since the early sixties.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £14.6 billion in September 2021, £10.6 billion less than in September 2020, bringing the total for the financial year-to-September 2021 to £98.6 billion.

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy and on public sector borrowing and debt.

Central government tax and National Insurance receipts combined in the financial year ending (FYE) 2021 were £671.4 billion, a fall of £32.0 billion (or 4.5%), compared with the same period a year earlier.

Government support for individuals and businesses during the coronavirus pandemic contributed to an increase of £204.4 billion (or 27.7%) in central government day-to-day (or current) spending, bringing the total to £942.5 billion.

As a result of these low receipts and high expenditure, provisional estimates indicate that in FYE 2021, the public sector borrowed £319.9 billion. This is equivalent to 14.9% of the UK’s gross domestic product (GDP), the highest such ratio since the end of World War Two, when it was 15.2% in FYE 1946.

In total, more than 50 schemes have been announced by the UK government and the devolved administrations to support individuals and businesses during the coronavirus pandemic. Our article Recent and upcoming changes to public sector finance statistics: September 2021 and earlier editions of this article discuss the largest of the coronavirus schemes by implementation status within the public sector finances.

The extra funding required by government coronavirus support schemes, combined with reduced cash receipts and a fall in GDP, have all helped to push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Public sector net debt excluding public sector banks (PSND ex) at the end of September 2021 was equivalent to 95.5% of GDP.

The public sector spent more than it received in taxes and other income in September 2021, requiring it to borrow £21.8 billion, the second-highest September borrowing on record.

Analysis of the components of borrowing in September 2021

Central government is the largest sub-sector of the public sector and therefore changes in central government receipts and expenditure usually have the most influence on public sector net borrowing. Public sector finances tables 1 to 10: Appendix A provide further information.

In line with new UK Government Accessibility Regulations we have updated our Excel presentations to meet the Equality Act 2010. The presentation of each of the six appendices to this bulletin (A to F), along with the Public sector finances borrowing by sub-sector, have been updated to reflect good accessibility practice. To aid the transition, this month we have presented our main dataset, Public sector finances tables 1 to 10: Appendix A in both the accessible and standard format, marked Appendix AA.

Central government receipts

Central government receipts in September 2021 were estimated to have been £62.3 billion, a £6.2 billion increase compared with September 2020. Of these receipts, tax revenue increased by £4.7 billion to £45.6 billion.

In the most recent months, tax receipts recorded on an accrued (or national accounts) basis have been subject to some uncertainty. This is because many taxes such as Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax contain some forecast cash receipts data and are liable to revision when actual cash receipts data are received.

Value Added Tax

In November 2021, we intend to include a provisional estimate for the losses incurred through non-payment of VAT liabilities over the March to June 2020 coronavirus (COVID-19) payment deferral period, alongside a reprofiling of monthly accrued VAT to reflect the sharp change in economic output in March 2020.

Corporation Tax

From April 2021, Corporation Tax estimates have been affected to some extent by the introduction of the super-deduction capital allowance, providing tax incentives for companies to invest in qualifying new plant and machinery assets – our Public sector classification guide and forward work plan provides more information. The rate of uptake of this scheme is not yet clear, adding further uncertainty to the profile of Corporation Tax receipts in recent months.

Central government expenditure

Central government bodies spent £84.1 billion in September 2021, £1.3 billion less than in September 2020.

Interest payments on debt by central government

Interest payments on central government debt were £4.8 billion in September 2021 and equal to those in September 2020.

The recent high levels in debt interest payments are largely a result of movements in the Retail Prices Index (RPI) to which index-linked gilts are pegged. To estimate the RPI uplift for 3-month lagged index linked gilts in October 2021, we reference the RPI movement between July and August 2021.

While any RPI uplift will impact on accrued expenditure (as used in the calculation of borrowing) it will not be wholly and immediately reflected in the central government net cash requirement. These movements are reflected in the government’s liabilities, which will be realised as the existing stock of index-linked gilts is redeemed.

Central government expenditure on procurement and pay

Central government departments spent £30.4 billion on goods and services in September 2021, an increase of £1.7 billion from September 2020.

Spending in this area includes £17.1 billion on procurement and £13.1 billion in pay. This cost includes the expenditure by the Department of Health and Social Care (DHSC), devolved administrations and other departments in response to the coronavirus pandemic including the NHS Test and Trace programme and the cost of vaccines.

Transfers to local government

Central government current transfers to local government were £10.1 billion in September 2021, an increase of £0.9 billion compared with September 2020.

Current and capital transfers between central government and local government are based on administrative data supplied by HM Treasury and have no impact at the public sector level.

Job support schemes

The Coronavirus support schemes, the Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS), closed in September 2021. Our estimates of the cost of these schemes are not yet final. We expect to update our estimates over the coming months as further audited data becomes available.

The public sector borrowed £108.1 billion in the financial year-to-September 2021, £101.2 billion less than in the same period a year earlier.

Official forecasts suggest that borrowing may reach £233.9 billion by the end of the financial year ending (FYE) 2022, £86.0 billion less than the £319.9 billion borrowed in the FYE 2021.

Borrowing had generally been falling since its peak of £157.8 billion during the economic downturn in FYE March 2010. However, largely as a result of the impact of the coronavirus (COVID-19) pandemic, the £319.9 billion borrowed in FYE March 2021 was double this previous record.

Analysis of the components of borrowing in financial year-to-September 2021

Central government is the largest sub-sector of the public sector and therefore changes in central government receipts and expenditure usually have the most influence on public sector net borrowing. Public sector finances tables 1 to 10: Appendix A provide further information.

Central government receipts

Central government receipts in the financial year-to-September 2021 were estimated to have been £379.8 billion, a £51.2 billion increase compared with the same period in 2020. Of these receipts, tax revenue increased by £46.6 billion to £280.7 billion.

Central government expenditure

Central government day-to-day (or current) spending was estimated to have fallen by £30.1 billion to £455.5 billion, in financial year-to-September 2021 compared with the same period a year earlier.

The central government net cash requirement (CGNCR), excluding UK Asset Resolution Ltd and Network Rail, is the amount of cash needed immediately for the UK government to meet its obligations. To obtain cash, the UK government sells financial instruments, gilts or Treasury Bills.

The amount of cash required will be affected by changes in the timing of tax payments by individuals and businesses, but does not depend on forecast tax receipts in the same way as our accrued (or national accounts) based measures.

The CGNCR consequently contains the timeliest information and is less susceptible to revision than other statistics in this release. However, as for any cash measure, the CGNCR does not reflect the overall amount for which the government is liable or the point at which any liability is incurred – it only reflects when cash is received and spent.

Public sector net debt represents the amount of money the public sector owes to private sector organisations (including overseas institutions). When the government borrows, this normally adds to the debt total, but it is important to remember that reducing borrowing (the deficit) is not the same as reducing the debt.

Public sector net debt excluding public sector banks (PSND ex) stood at £2,218.9 billion at the end of September 2021, an increase of £174.3 billion compared with the same point last year.

Over the course of the coronavirus (COVID-19) pandemic, the increase in debt and a fall in gross domestic product (GDP) have helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Debt as a ratio of GDP stands at 95.5% at the end of September 2021.

Central government gilts

Debt represents the amount of money owed by the public sector to the private sector and is largely made up of gilts (or bonds) issued to investors by central government.

There were £1,963.3 billion of central government gilts in circulation at the end of September 2021 (including those held by the Bank of England (BoE) Asset Purchase Facility Fund). This comprised of £1,483.4 billion in conventional gilts and £479.9 billion in index-linked gilts (at redemption value).

These gilts are auctioned by the Debt Management Office (DMO), on behalf of central government in accordance with its financing remit.

The Bank of England’s contribution to debt

The BoE’s contribution to debt is largely a result of its quantitative easing activities through the Asset Purchase Facility (APF) and Term Funding Schemes (TFS).

Our presentation of the BoE’s contribution to net debt can be found in Table PSA9A in our Public sector finances tables 1 to 10: Appendix A.

The estimated impact of the APF’s gilt holdings on debt currently stands at £111.3 billion, representing the difference between the value of the reserves created to purchase gilts (or market value of the gilts) and the £724.6 billion face (or redemption) value of the gilts purchased.

The total corporate bond holdings of the APF at the end of September 2021 stood at £19.7 billion, adding an equivalent amount to the level of debt.

The loan liability under the TFS umbrella at the end of September 2021 stood at £114.2 billion, adding an equivalent amount to the level of debt.

If we were to remove the temporary debt impact of these schemes along with the other transactions relating to the normal operations of the BoE, PSND ex at the end of September 2021 would reduce by £239.3 billion (or 13.3 percentage points of GDP) to £1,979.6 billion (or 85.2% of GDP).

Public sector net financial liabilities excluding public sector banks

Public sector net financial liabilities excluding public sector banks (PSNFL ex) is a supplementary fiscal aggregate announced by government in the Autumn Statement 2016 and is a more comprehensive measure of the public sector balance sheet, capturing a wider range of financial assets and liabilities than recorded in PSND ex.

For example, the assets held under the Term Funding Schemes fall outside the boundary of PSND ex.

PSNFL ex were £1,978.0 billion at the end of September 2021, £197.1 billion more than in September 2020.

Table PSNFL 1 summarises the components used to estimate PSNFL ex, while Table PSNFL 3 provides a reconciliation between the latest measure of PSND ex and PSNFL ex.

PSNFL ex is very similar to the national accounts concept of public sector net financial worth (PSNFW). The only difference between the two aggregates is that in PSNFL ex, the deposit, loan and debt security liabilities are recorded at face value, whereas in PSNFW these assets and liabilities are recorded at market value.

The data for the latest months of every release contain a degree of forecasts; subsequently, these are replaced by improved forecasts as further data are made available and finally by outturn data.

The coronavirus (COVID-19) pandemic has had a substantial impact on both tax receipts and expenditure. These impacts are likely to be revised further as the full effects of the coronavirus pandemic on the public finances continue to become clearer.

On the 5 October 2021, we published a correction to our Public Sector Finances: August 2021 release, affecting our public sector funded pension borrowing data for the period April 2020 to August 2021 inclusive.

As a result, we reduced our estimate of public sector net borrowing by £4.6 billion to £320.5 billion in the financial year ending March 2021 and by £2.5 billion to £91.3 billion in the financial year-to-August 2021.

The revisions presented in this section are presented against the 5 October 2021 publication.

The revisions to the components of central and local government borrowing are summarised in Public sector finances tables 1 to 10: Appendix A.

Revisions to net borrowing in the financial year-to-August 2021

Since our last publication (5 October 2021), we have reduced our estimate of borrowing in the financial year-to-August 2021 by £4.9 billion.

September is a large corporation tax cash receipt month because of larger companies paying their quarterly liabilities. These cash receipts were stronger than the Office for Budget Responsibility (OBR) based cash forecasts they replaced. As a result, we have increased our accrued corporation tax estimates for July and August 2021 by a combined £1.5 billion and by an additional £0.6 billion between April and June 2021 due to further updated corporation tax cash receipts.

Higher than forecast September cash VAT receipts have resulted in a £0.5 billion increase in our previous estimate of accrued VAT receipts between June and August 2021.

We have reduced our previous estimate of central government expenditure on goods and services over the latest five months by £1.5 billion, reflecting the provisional nature of departmental expenditure over the COVID-19 period.

As performed last month, we have replaced our OBR based estimate of accrued expenditure under the Coronavirus Job Retention Scheme for August 2021 with a HM Revenue and Customs (HMRC) estimate. This has resulted in a downward revision of £0.2 billion to our previous estimate.

Revisions to the public sector bank’s contribution to net borrowing

Estimates of the public sector bank’s contribution to net borrowing are derived from the profit and loss account of these organisations, supplied to us by the Bank of England twice annually.

This month we have received data covering the period January to June 2021 for the first time, enabling us to update our previous borrowing estimates.

As a consequence, our estimate of public sector net borrowing including public sector banks has reduced by £0.3 billion for the financial year ending March 2020 and by £0.6 billion for the financial year ending March 2021.

Revisions to public sector net debt

This month we have increased our previous estimate of the level of debt at the end of August 2021 by £2.5 billion from that published on 5 October 2021, as a result of the reduction in of our estimate of the cash held within the Asset Purchase Facility Fund.

Revisions to gross domestic product (GDP)

This month we updated our estimates of GDP used in our public sector net debt ratio to reflect the quarterly national accounts published by the Office for National Statistics (ONS) on 30 September 2021.

Largely as a result of these new data we have reduced our estimate of the level of public sector net debt excluding public sector banks (PSNB ex) at the end of March 2021 expressed as a ratio of GDP by 2.1 percentage points. Similarly, we have reduced our estimate of public sector net borrowing (excluding public sector banks) in the financial year ending March 2021 by 0.4 percentage points.

The revisions to our debt aggregates are presented in Public sector finances tables 1 to 10: Appendix A.

Changes to public sector finance statistics introduced in September 2021

In accordance with our transparency strategy and to provide increased predictability to users, we aim to package together methodological changes so that they occur, where possible, at a single point in the year.

In September 2021 we introduced several methodology improvements and substantial data updates, our article Recent and upcoming changes to public sector finance statistics: August 2021 explains many of these in detail.

This month we have updated our estimates of public sector net financial liabilities (PSNFL ex) to reflect the September updates for the first time and in doing so have increased our estimate of PSNFL ex at the end of March 2021 by £80.6 billion, from £1,821.7 billion to £1,902.3 billion.

The most notable affects are the result of updated estimates of public sector funded pension data along with the inclusion of the Bank of England Banking and Issue Department balance sheet data in the PSNFL ex estimate for the first time. Appendix K: Changes to public sector finance statistics implemented in September 2021 provides a breakdown of each of the more significant revisions to PSNFL ex.

Public sector

In the UK, the public sector consists of six sub-sectors: central government, local government, public non-financial corporations, public sector pensions, the Bank of England (BoE) and public financial corporations (or public sector banks).

Public sector current expenditure

Current expenditure measures reflect the cost of the public sector’s day-to-day activities. For example, in the case of central government these include:

• providing services and grants (for example, related to education, defence, and health and social care) – including the current job furlough schemes
• payment of social benefits (such as pensions, unemployment payments, Child Benefit and Statutory Maternity Pay)
• payment of the interest on the government’s outstanding debt

Public sector debt interest to revenue ratio

The debt interest to revenue ratio (DIR) represents the proportion of net interest paid (gross interest paid less interest received) by the public sector (excluding public sector banks), compared with the non-interest receipts it receives in a given period.

Public sector current budget deficit

Public sector current budget is the difference between revenue (mainly from taxes) and current expenditure, on an accrued (or national accounts) basis; it is the gap between current expenditure and current receipts (having taken account of depreciation). The current budget is in surplus when receipts are greater than expenditure.

Public sector net investment

Public sector net investment is the sum of all capital spending, mainly net acquisitions of capital assets and capital grants, less the depreciation of the stock of capital assets.

Public sector net borrowing

Public sector net borrowing excluding public sector banks (PSNB ex) measures the gap between revenue raised (current receipts) and total spending (current expenditure plus net investment (capital spending less capital receipts)). PSNB is often referred to by commentators as “the deficit”.

Public sector net cash requirement

The public sector net cash requirement (PSNCR) represents the cash needed to be raised from the financial markets over a period of time to finance the government’s activities. This can be close to borrowing (the deficit) for the same period; however, there are some transactions, for example, loans to the private sector, that need to be financed but do not contribute to the deficit. It is also close but not identical to the changes in the level of net debt between two points in time.

Public sector net debt

Public sector net debt excluding public sector banks (PSND ex) represents the amount of money the public sector owes to private sector organisations including overseas institutions, largely as a result of issuing gilts and Treasury Bills, minus the amount of cash and other short-term assets it holds. PSND is often referred to by commentators as “the national debt”.

Public sector net financial liabilities

Public sector net financial liabilities excluding public sector banks (PSNFL ex) is a comprehensive measure of the public sector balance sheet, capturing a wider range of financial assets and liabilities than recorded in PSND ex.

PSNFL ex is very similar to the national accounts concept of public sector net financial worth (PSNFW). The only difference between the 2 aggregates is that in PSNFL ex, the deposit, loan and debt security liabilities are recorded at face value, whereas in PSNFW these assets and liabilities are recorded at market value.

Public sector banks

Unless otherwise stated, the figures quoted in this bulletin exclude public sector banks, currently only the NatWest Group (formerly the Royal Bank of Scotland (RBS) Group).

The reported position of debt, and to a lesser extent, borrowing, would be distorted by the inclusion of NatWest Group’s balance sheet (and transactions). This is because the government does not need to borrow to fund the debt of NatWest Group, nor would surpluses achieved by NatWest Group be passed on to the government, other than through any dividends paid as a result of the government equity holdings.

Gross domestic product

Gross domestic product (GDP) measures the value of goods and services produced in the UK. It estimates the size of and growth in the economy.

GDP used to present debt and other headline measures are partly based on provisional and official forecast data. Our September 2021 estimate of monthly GDP requires data across four quarters of GDP. Of these, one is based on the quarterly national accounts published by the Office for National Statistics (ONS) on 30 September 2021 and three are based on the latest official forecasts published by the Office for Budget Responsibility (OBR) on 3 March 2021.

Comparisons with official forecasts

The independent Office for Budget Responsibility (OBR) is responsible for the production of official forecasts for the government. These forecasts are usually produced twice a year, in spring and autumn.

Borrowing in the financial year ending (FYE) 2021 was £34.7 billion less than the £354.6 billion expected by the OBR in their Economic and Fiscal outlook – March 2021.

The Autumn Budget 2021 (and publication of the next OBR forecast) has been announced as 27 October 2021. We will reflect these data in our estimates at the earliest opportunity.

Exceptional adjustments applied to tax data

The data used to inform receipts on a national accounts basis are largely consistent with the OBR Economic and fiscal outlook (EFO) – March 2021 and the latest set of supporting monthly data profiles published 21 July 2021 (XLS, 107KB). Where necessary, and if there is sufficient information, further adjustments are made to estimate the impact of the coronavirus (COVID-19) pandemic.

Further details of the methods used to estimate the effect of coronavirus on receipts were provided in Section 12 of Public sector finances, UK: March 2021.

Central government resource accounts

Most central government departments usually publish their audited resource accounts by August of each year enabling us to reflect them in the September publication. Due to the exceptional demands of the COVID-19 pandemic, a number of central government departments are yet to publish their audited accounts for the financial year ending March 2021. We will reflect updates from audited outturn in our dataset at the earliest opportunity.

Local government and public corporations

In recent years, planned local government expenditure initially reported in local authority budgets has been systematically higher than the final outturn expenditure reported in the audited accounts. We therefore include adjustments, usually to reduce the amounts reported at the budget stage.

For FYE 2021 we include:

• a £0.4 billion downward adjustment to Wales’ capital expenditure
• an £8.5 billion upward adjustment to England’s current expenditure on goods and services, as the budget forecasts on which these are based were prepared before the coronavirus pandemic

We apply a further £1.5 billion downward adjustment to budget forecast current expenditure on benefits in FYE 2021, to reflect the most recently available data for housing benefits.

For FYE 2022 we include:

• a £0.5 billion downward adjustment to Scotland’s capital expenditure
• a £0.4 billion downward adjustment to Wales’ capital expenditure
• a £6.0 billion upward adjustment to England’s current expenditure on goods and services

We apply a further £0.6 billion downward adjustment to budget forecast current expenditure on benefits in FYE 2022, to reflect the most recently available data for housing benefits.

Public corporations’ data in the most recent periods are initial estimates, largely based on the OBR Economic and fiscal outlook (EFO) – March 2021, with adjustments being applied as needed. Data supplied by the Department for Transport have been used in implementing the reclassification of train operating companies under emergency measures for the FYE 2021.