Public sector finances, UK: February 2022

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: February 2022

• Public sector finances borrowing by sub-sector dataset

• UK government debt and deficit: September 2021

• Public sector net borrowing excluding public sector banks (PSNB ex) was £13.1 billion in February 2022, the second-highest February borrowing since monthly records began in 1993; this was £2.4 billion less than in February 2021 but still £12.8 billion more than in February 2020, before the coronavirus (COVID-19) pandemic.

• Central government receipts were £71.9 billion in February 2022, £5.8 billion more than in February 2021, of which tax receipts were £53.7 billion, an increase of £4.2 billion.

• Central government current (or day-to-day) expenditure was £73.2 billion in February 2022, £1.0 billion more than in February 2021, of which debt interest payments were £8.2 billion, an increase of £2.8 billion.

• PSNB ex was £138.4 billion in the financial year-to-February 2022; this was the third-highest financial year-to-February borrowing since monthly records began in 1993 but less than half of the £290.9 billion borrowed in the same period last year.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £1.6 billion in February 2022, £4.8 billion less than in February 2021, bringing the total for the financial year-to-February 2022 to £110.5 billion.

• Public sector net debt excluding public sector banks (PSND ex) was £2,326.8 billion at the end of February 2022 or around 94.7% of gross domestic product (GDP), maintaining a level not seen since the early 1960s.

• Public sector net debt excluding public sector banks and the Bank of England (PSND ex BoE) was £2,005.3 billion at the end of February 2022 or around 81.6% of GDP.

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy as well as public sector borrowing. Expressed as a ratio of UK gross domestic product (GDP), borrowing in the financial year ending (FYE) March 2021 was the highest for 75 years.

However, we are beginning to see some recovery, with the £138.4 billion borrowed in the first 11 months of the current financial year being less than half of that borrowed in the same period last year.

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 at the end of February 2022 to 94.7% of GDP, a level last seen in the early 1960s.

In February 2022, the public sector spent more than it received in taxes and other income, requiring it to borrow £13.1 billion.

Central government receipts

Central government receipts in February 2022 were estimated to have been £71.9 billion, a £5.8 billion increase compared with February 2021. Of these receipts, tax revenue increased by £4.2 billion to £53.7 billion.

Self-assessment Income Tax

In February 2022, self-assessment (SA) Income Tax receipts were £3.1 billion, £1.2 billion less than in February 2021. These payments bring the combined January and February 2021 receipts to £20.0 billion, a decrease of £0.8 billion compared with last year.

In light of the UK government’s coronavirus (COVID-19) deferral policy and payment schemes, this year it is advisable to look at the combined SA Income Tax receipts across the whole financial year. Currently, in the financial year-to-February 2022, SA Income Tax receipts were £36.6 billion, £6.5 billion more than in the same period last year.

Central government expenditure

Central government bodies spent £73.2 billion on current (day-to-day) expenditure in February 2022, £1.0 billion more than in February 2021.

Interest payments on debt by central government

The recent high levels of debt interest payments are largely a result of movements in the Retail Prices Index (RPI) to which index-linked gilts are pegged. In February 2022, debt interest was £8.2 billion, the highest February on record, with the RPI uplift on index-linked gilts being £5.2 billion over and above the accrued coupon payments and other components of debt interest.

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.

Support package for energy bills including council tax rebate scheme

On 3 February 2022, following Ofgem's announcement of a rise in the energy price cap, the UK government responded with a package of support for households.

Details of the formal classification decision on the recording of the Council Tax rebate scheme for England were presented in the Public Sector Classifications Guide published on 28 February 2022.

We concluded that the Council Tax rebate in England should be classified as a payable tax credit, specifically as a current transfer paid by central government to households.

This one-off payment will increase public sector net borrowing in April 2022.

Classifications assessments for other parts of the Energy Bills Rebate package, including the proposed £200 discount on autumn 2022 domestic energy bills, will be made when more information becomes available.

Bulb Energy Ltd

On 24 November 2021, the energy provider Bulb Energy Ltd was placed in a Special Administration Regime (SAR) by the UK government to ensure continued provision of essential services to its customers.

We will consider the impact of the SAR on the public sector finances and review its recording as part of our classifications work. In the meantime, payments made under the SAR are provisionally treated as expenditure under "other capital transfers", a component of net investment, as they happen. 

Further information is available in our article Recent and upcoming changes to public sector finance statistics: December 2021.

Student loans

On 24 February 2022, the UK government announced new changes to the student finance system in England. Information about the future impact of these changes can be found in our article Recent and upcoming changes to public sector finance statistics: February 2022.

The public sector borrowed £138.4 billion in the financial year-to-February 2022 (April 2021 to February 2022), £152.5 billion less than in the same period a year earlier and £25.9 billion less than the official Office for Budget Responsibility (OBR) forecast.

This was the third-highest financial year-to-February borrowing on record, being higher in the same period last year and during the economic downturn following the global financial crisis in the financial year-to-February 2010.

Current budget deficit

Public sector current budget deficit is the difference between current (day-to-day) expenditure and current receipts (mainly from taxes), having taken account of depreciation.

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) was £2,326.8 billion at the end of February 2022, an increase of £197.3 billion compared with the same time the previous year.

The extra funding required by government over the course of the coronavirus (COVID-19) pandemic, combined with reduced cash receipts and a fall in gross domestic product (GDP), have all helped to push public sector net debt at the end of February 2022 to 94.7% of GDP, a level last seen in the early 1960s.

Debt is largely made up of gilts (or bonds) issued to investors by central government. Of the £2,032.9 billion gilts in circulation at the end of February 2022:

• £1,530.8 billion are conventional gilts that pay a fixed interest rate

• £502.1 billion are index-linked gilts that pay an interest rate pegged to the Retail Prices Index (RPI) and are recorded at their 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 (BoE's) contribution to public sector net debt is largely a result of its quantitative easing activities through both its gilt and corporate bond holdings of the Asset Purchase Facility Fund (APF) and the loans made under Term Funding Schemes (TFS).

At the end of February 2022, the APF held £760.0 billion in conventional gilts, however, these are not recorded directly as a component of public sector net debt. Instead, we record the £115.0 billion difference between the £874.9 billion of reserves created to purchase gilts (or market value of the gilts) and the £760.0 billion face (or redemption) value of the gilts purchased. Table PSA9A in our Public sector finances tables 1 to 10: Appendix A, presents the impact of both APF and TFS as a part of BoE's contribution to public sector net debt.

Our public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) measure removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Currently standing at £2,005.3 billion at the end of February 2022 (or around 81.6% of GDP), PSND ex BoE is £321.5 billion (or 13.1 percentage points of GDP) less than PSND ex.

Public sector net financial liabilities

Public sector net financial liabilities excluding public sector banks (PSNFL ex) provide a more comprehensive measure of the public sector balance sheet, capturing a wider range of financial assets and liabilities than recorded in PSND ex, such as the assets held under the TFS, which fall outside the boundary of PSND ex.

PSNFL ex was £1,962.7 billion at the end of February 2022 (or around 79.9% of GDP), £364.1 billion (or 14.8 percentage points of GDP) less than PSND ex.

Table PSNFL 3, published as a part of Public sector finances tables 1 to 10: Appendix A, provides a reconciliation between the latest measure of PSND ex and PSNFL ex.

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.

Revisions to net borrowing in the financial year-to-January 2022

Since our last publication (22 February 2022), we have reduced our estimate of borrowing in the financial year-to-January 2022 by £13.2 billion, with sizable reductions to our previous estimates of both central and local government net borrowing.

Central government

We have reduced our previous estimate of central government net borrowing in the financial year-to-January 2022 by £5.9 billion.

We have increased our previous estimates of central government tax receipts by £4.8 billion, while our previous estimate of departmental expenditure on goods and services has reduced by £1.7 billion over the same ten-month period.

In addition to the regular revisions in the latest months, value added tax (VAT) receipts (on an accuals basis) have been adjusted to account for the distortionary impact of the VAT deferral policy on cash receipts. These improvements have resulted in smaller monthly revisions extending back to January 2021.

This month we have increased our estimate of net investment by £0.5 billion, with a £1.7 billion increase in our estimate of student loan write offs, as discussed in our latest Recent and Upcoming changes article, partially offset by a £1.0 billion reduction in gross capital formation.

Tables 11 and 12 detail the revisions to central government receipts and expenditure in the financial year-to-January 2022 since our last publication.

Local government

Since our last publication we have reduced our estimate of local government net borrowing in the financial year-to-January 2022 by £6.1 billion. These revisions are largely because of our improved estimates based on recently received in-year expenditure data and taking account of the delayed outturn data for the financial year ending (FYE) March 2021.

Based on this information we have reduced the overspend adjustment to England's forecast current expenditure on goods and services in FYE March 2022 by £2.5 billion to £3.5 billion.

Additionally, we have removed transport support expenditure relating to Transport for London (TfL) because on receiving outturn data for FYE March 2021, we established this expenditure component is already included in the public non-financial corporations sub-sector. We have also reduced our estimate of capital grants to the private sector.

Public corporations

We have reduced our previous estimate of public corporations net borrowing in the financial year-to-January 2022 by £1.3 billion, largely because of an increase to our previous estimate of gross operating surplus. We have increased the gross operating surplus of both the train operating companies and the Housing Revenue Account, where in both cases in-year data have replaced previous estimates.

Revisions to net borrowing in earlier financial years

Since our last publication (22 February 2022), we have reduced our estimate of borrowing in FYE March 2021 by £4.1 billion.

Central government

We have increased our previous estimates of central government tax receipts by £1.0 billion; most notably, both VAT receipts and corporation tax receipts have increased by £0.4 billion each.

Local government

In general, we receive our estimates of local government receipts and expenditure from both the Department for Levelling Up, Housing and Communities and the devolved administrations during the summer after the financial year to which they relate, enabling us to publish near-final estimates in the September publication and final estimates in December.  

However, this year the impact of the coronavirus (COVID-19) pandemic has delayed this process, and therefore our estimates of local government borrowing have remained provisional for longer than is usual.

This month we have compiled an outturn-based estimate for the first time and as a result we have reduced our estimate of local government net borrowing in the FYE March 2021 by £3.5 billion.

Most notably, this includes the impact of removing transport support expenditure relating to Transport for London, which, using the recently published outturn data,  we have now established is already included in the public non-financial corporations sub-sector.

Revisions to public sector net debt

This month we have increased our previous estimate of the level of debt at the end of January 2022 by £2.6 billion from that published on 22 February 2022. This was largely the result of an increase of £2.1 billion to our previous estimate of local government loan liabilities and a £0.7 billion increase to Network Rail's contribution to central government debt.

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 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).

Public sector current budget deficit

Public sector current budget deficit is the gap between current expenditure and current receipts on an accrued basis, having taken account of depreciation.

The current budget is in surplus when receipts are greater than expenditure.

Public sector current expenditure

Current expenditure measures reflect the cost of the public sector's day-to-day activities. For example, central government's provision of services and grants, payment of social benefits and the payment of the interest on its 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 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 may be similar to borrowing (the deficit) for the same period and 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) and is often referred to by commentators as "the national debt".

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 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.

Total managed expenditure

Total managed expenditure (TME) covers all current and capital spending carried out by the public sector, including depreciation. This is equal to public sector current expenditure, plus public sector net investment, plus deprecation.

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.

The government has announced that the Spring 2022 forecast statement will be published on 23 March 2022, which will be accompanied by an updated set of official forecasts published by the OBR.

To supplement this release we publish an accompanying methodological guide and Quality and Methodology Information outlining the strengths, limitations, and appropriate uses of the public sector finance dataset.

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 financial year ending (FYE) 2021 (April 2020 to March 2021) we have applied a £0.5 billion downward adjustment to current expenditure on benefits, to reflect the most recently available data for housing benefits.

For FYE 2022 we include:

• a £2.5 billion downward adjustment to England's capital expenditure

• a £0.5 billion downward adjustment to Scotland's capital expenditure

• a £0.4 billion downward adjustment to Wales's capital expenditure

• a £3.5 billion upward adjustment to England's current expenditure on goods and services

We apply a further £2.1 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) - October 2021, with adjustments being applied as needed.