Public sector finances, UK: July 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: July 2021
• UK government debt and deficit: March 2021

• Public sector net borrowing (excluding public sector banks, PSNB ex) was estimated to have been £10.4 billion in July 2021; this was the second-highest July borrowing since monthly records began in 1993, but £10.1 billion less than in July 2020.

• Central government receipts in July 2021 were estimated to have been £70.0 billion, £9.5 billion more than in July 2020, while central government bodies spent £79.8 billion in July 2021, £2.9 billion less than in July 2020.

• Self-assessed Income Tax receipts were £8.5 billion in July 2021, which is £3.7 billion more than in July 2020.

• Public sector net borrowing (PSNB ex) was estimated to have been £78.0 billion in the financial year-to-July 2021; this was the second-highest financial year-to-July borrowing since monthly records began in 1993, £61.6 billion less than in the same period last year.

• Public sector net debt (excluding public sector banks, PSND ex) was £2,216.0 billion at the end of July 2021 or around 98.8% of GDP, the highest ratio since the 99.5% recorded in March 1962.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £1.8 billion in July 2021, £23.7 billion less than in July 2020, bringing the total for the financial year-to-July 2021 to £75.3 billion.

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

Central government tax and National Insurance receipts combined in the financial year ending (FYE) March 2021 (April 2020 to March 2021) were £672.1 billion, a fall of £31.0 billion compared with the same period a year earlier. Government support for individuals and businesses during the coronavirus pandemic contributed to an increase of £204.3 billion in central government day-to-day (or current) spending to £942.7 billion.

As a result of these low receipts and high expenditure, provisional estimates indicate that in FYE March 2021, the public sector borrowed £298.0 billion, equivalent to 14.2% 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 March 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 pandemic. Our article Recent and upcoming changes to public sector finance statistics: July 2021 discusses 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 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 July 2021 was equivalent to 98.8% of GDP.

The public sector spent more than it received in taxes and other income in July 2021, requiring it to borrow £10.4 billion, the second-highest July borrowing on record.

Analysis of the components of borrowing in July 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 July 2021 were estimated to have been £70.0 billion, a £9.5 billion (or 15.6%) increase compared with July 2020. Of these receipts, tax revenue increased by £7.7 billion to £51.7 billion.

In the most recent months, tax receipts recorded on an accrued (or national accounts) basis are always subject to some uncertainty, as 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.

The period of uncertainty is longer for taxes with coronavirus deferral schemes, such as VAT, and data for these taxes will be provisional for longer than usual.

Corporation Tax

Corporation Tax receipts in recent months have been higher than those published in the Office for Budget Responsibility’s (OBR) Economic and fiscal outlook (EFO) – March 2021.

This month we have compared the forecast and actual cash receipts for June 2021 to inform an exceptional upward adjustment to the forecast cash receipts in September 2021, which influences our July 2021 provisional estimate of corporation tax receipts on an accrued (National Accounts) basis.

We will continue to review this adjustment and apply similar adjustments if required.

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 those companies investing in qualifying new plant and machinery assets. The rate of uptake of this scheme is not yet clear, adding further uncertainty to the profile of Corporation Tax receipts in recent months.

Self-assessed tax receipts

In July (and January), accrued receipts are usually high owing to receipts from self-assessed taxes. This month self-assessed Income Tax receipts were £8.5 billion, £3.7 billion more than in July 2020 but £0.9 billion less than that of July 2019. As well as primarily affecting July receipts, the revenue raised through self-assessed taxes also tends to lead to higher receipts in August, although to a lesser degree.

When making year-on-year comparisons it is important to consider the impact of the government’s deferral schemes in place last year which have impacted on the usual monthly payment profile. It is advisable to look at the combined self-assessed Income Tax receipts across the whole financial year when drawing conclusions from year-on-year comparisons.

Central government expenditure

Central government bodies spent £79.8 billion in July 2021, £2.9 billion less than in July 2020. This reduction in expenditure is largely because of the falling cost of the job furlough schemes, Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS), which are due to close in September 2021.

Interest payments on debt by central government

Interest payments on central government debt were £3.4 billion in July 2021, £1.1 billion more than in July 2020 but £5.4 billion less than the monthly record of £8.7 billion in June 2021. Fluctuations in debt interest are largely a result of movements in the Retail Prices Index (RPI) to which index-linked gilts are pegged. While any RPI uplift will impact on accrued expenditure (as used in the calculation of borrowing) it will not be wholly reflected in the central government net cash requirement in the near term. 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 £30.7 billion on goods and services in July 2021, an increase of £0.5 billion from July 2020. Spending in this area includes £16.9 billion on procurement and £13.3 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 £11.9 billion in July 2021, a fall of £0.9 billion compared with July 2020. In part, these payments enable local authorities to fund coronavirus policies. 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.

The public sector borrowed £78.0 billion in the financial year-to-July 2021, £61.6 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) March 2022, £64.1 billion less than that borrowed in the FYE March 2021.

Borrowing had generally been falling since its peak of £157.7 billion during the economic downturn in FYE March 2010. However, largely as a result of the impact of the coronavirus (COVID-19) pandemic, the £298.0 billion borrowed in FYE March 2021 was broadly double this previous record.

Analysis of the components of borrowing in financial year-to-July 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-July 2021 were estimated to have been £251.8 billion, a £34.8 billion increase compared with the same period in 2020. Of these receipts, tax revenue increased by £32.6 billion to £185.1 billion.

Bank of England Asset Purchase Facility Fund

In the financial year-to-July 2021, there were £1.9 billion in dividends transferred from the Bank of England Asset Purchase Facility Fund (BEAPFF) to HM Treasury, £4.3 billion less than in the same period in 2020.

As with other such transfers, central government net borrowing is reduced by an amount equivalent to the transfer, while the net borrowing of the Bank of England is increased by an equal and offsetting amount. Hence, there is no impact at the public sector level.

Central government expenditure

Central government day-to-day (or current) spending was estimated to have fallen by £28.6 billion to £310.0 billion, in financial year-to-July 2021 compared with the same period a year earlier. This reduction in expenditure is largely because of the falling cost of the job furlough schemes, Coronavirus Job Retention Scheme (CJRS) and Self Employment Income Support Scheme (SEISS) which are due to close in September 2021.

Transfers to local government

Central government current transfers to local government were £52.8 billion in the financial year-to-July 2021, £8.8 billion less than in the same period a year earlier.

Some coronavirus-related current grants that have been paid by central to local government have either not been spent or have not yet been fully reflected in our estimates of local government spending.

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 £2,216.0 billion at the end of July 2021, an increase of £222.3 billion compared with the same point last year.

While gross debt has continued to rise, this month’s lower cash spending and higher cash receipts in the central government sector have led to a short-term build-up in liquid assets which has, in turn, reduced public sector net debt compared with last month.

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, with debt as a ratio of GDP currently standing at 98.8% at the end of July 2021.

Estimates of GDP used to present debt and other headline measures in the most recent months are partly based on provisional and official forecast data and are so prone to revision.

This month we’ve included GDP first quarterly estimate, UK: April to June 2021 (12 August 2021) in our estimate which was higher than forecast. This increase in the denominator has contributed to a reduction in the debt ratio in the most recent months.

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 £1,946.6 billion of central government gilts in circulation at the end of July 2021 (including those held by the Bank of England (BoE) Asset Purchase Facility Fund), comprising of £1,474.1 billion in conventional gilts and £472.5 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 Bank of England’s (BoE) contribution to debt is largely a result of its quantitative easing activities through the BoE Asset Purchase Facility (APF) Fund and Term Funding Schemes (TFS).

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, public sector net debt excluding public sector banks (PSND ex) at the end of July 2021 would reduce by £225.3 billion (or 10.1 percentage points of GDP) to £1,990.7 billion (or 88.7% of GDP).

The estimated impact of the APF’s gilt holdings on debt currently stands at £101.7 billion, representing the difference between the value of the reserves created to purchase gilts (or market value of the gilts) and the £709.6 billion face (or redemption) value of the gilts purchased.

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

The TFS loan liability stood at £22.7 billion and the Term Funding Scheme for small and medium-sized enterprises (TFSME) loan liability stood at £88.4 billion at the end of July 2021, making a combined liability of £111.1 billion, adding an equivalent amount to the level of debt.

Assets purchased under the TFS and TFSME fall outside the boundary of public sector net debt excluding public sector banks (PSND ex). Those users who are interested in wider measures of the public sector balance sheet may find estimates of public sector net financial liabilities (PSNFL) of interest.

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.

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

Since our last publication (21 July 2021), we have reduced our estimate of borrowing in the financial year-to-June 2021 by £1.8 billion.

Central government borrowing reduced by £1.6 billion largely because of a £0.8 billion increase in our previous estimate of tax revenue, a £0.2 billion reduction in our estimate of National Insurance receipts, combined with reductions in our previous estimates of current and capital expenditure of £0.6 billion and £0.4 billion respectively.

Local government borrowing reduced by £0.2 billion, because of an increased estimate of grants received from central government. While these additional grants reduced local government borrowing, the additional central government expenditure increased central government borrowing by an equal and offsetting amount, having no overall impact on public sector borrowing.

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 borrowing in the financial year ending (FYE) March 2021

Since our last publication (21 July 2021), we have increased our estimate of borrowing in financial year ending (FYE) March 2021 by £0.3 billion, largely because of increased accrued Corporation Tax estimates, resulting from higher than forecast July 2021 cash receipts. Estimates of Corporation Tax on an accrued (or national accounts) basis for FYE March 2021 are still provisional.

Revisions to public sector net debt

This month we have increased our previous estimate of the level of debt at the end of June 2021 by £0.2 billion from that published on 21 July 2021. This change is the result of several smaller changes including updated estimates for Network Rail’s contribution to central government gross debt, which has increased by £0.2 billion.

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

Revisions to public sector net debt as a ratio of gross domestic product

This month we updated our estimates of gross domestic product (GDP) used as the denominator in our net debt to GDP ratio to reflect the latest data published estimates (12 August 2021). As a result, our ratio of debt to GDP has reduced by between 0.1 and 0.2 percentage points at the end of each month for the period October 2020 to June 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 plan to make several improvements to our estimates. These include, the recording of the following items for the first time:

• the train operating companies under Emergency Measures Agreements as a part of the public sector
• the Future Fund which offered convertible loans to eligible companies affected by the coronavirus pandemic
• the government loan guarantee schemes (Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme and the Bounce Back Loan Scheme)
• the sale of the central government-owned railway arches

In addition, we will present the result of our review of the coverage and presentation of our Bank of England (BoE) data. A similar review is taking place considering the data sources for the Bank of England Asset Purchase Facility and Term Funding Schemes, and we aim to implement the outcome of that at the same time. Our regular annual updates to public sector pensions, student loans and capital consumption data will also take effect in September 2021.

Our article, Recent and upcoming changes to public sector finance statistics: July 2021 explains many of these changes planned for September 2021 in some detail.

Any impact on cash payments or receipts will already have been reflected in the latest estimates (of public sector net debt and central government net cash requirement).

Tables 12 and 13 present the estimated impact of the key methodological improvements to be introduced in September 2021, based on the latest estimates of public sector net borrowing and debt, respectively. These estimates are provisional and subject to further assurance prior to publication in September.

Tables 14 and 15 present the estimated impact of the planned data updates based on the latest estimate of public sector net borrowing and debt, respectively.

A further, more extensive presentation of the Provisional impacts of our planned September 2021 methodological and data changes is available in Changes to public sector finance statistics: Appendix K

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 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.

Other important terms commonly used to describe public sector finances are listed in the Public sector finances glossary.

Methodological guidance

The Monthly statistics on the public sector finances: a methodological guide provides comprehensive contextual and methodological information concerning the monthly public sector finances statistical bulletin. The guide sets out the conceptual and fiscal policy context for the bulletin, identifies the main fiscal measures, and explains how these are derived and interrelated.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Public sector finances QMI.

Provisional borrowing estimates

The figures for the latest month of every release contain some forecast data. The initial outturn estimates for the early months of the financial year, particularly April and May, contain more forecast data than other months, as profiles of tax receipts, along with departmental and local government spending are still provisional. Therefore, the data for these months are typically more prone to revision than other months and can be subject to sizeable revisions in later months.

This situation may be more pronounced in the financial year ending (FYE) March 2022 than previous years for central government spending. A new HM Treasury (HMT) administration system, used to collect the data, was introduced from June 2021 and used for the first time in the July release. As with all system changes there is a possibility that the outputs will be less stable in the initial stages. The Office for National Statistics (ONS) is working with HMT to minimise the impact of the system change on these statistics.

Exceptional adjustments applied to tax data

The data used to inform receipts on a national accounts basis are largely consistent with the Office for Budget Responsibility (OBR) Economic and fiscal outlook (EFO) – March 2021 and the latest set of supporting monthly data profiles published on 21 July 2021. 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 the coronavirus on receipts were provided in Section 12 of Public sector finances, UK: March 2021.

In July 2021, we applied an exceptional adjustment to our corporation tax data to partially account for its recent performance above that expected in the OBR’s Economic and fiscal outlook (EFO) – March 2021.

We will continue to review this adjustment and apply similar adjustments if required.

Comparisons with official forecasts

The independent 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 FYE March 2021 was £29.4 billion less than the £327.4 billion expected by the OBR in their Economic and Fiscal outlook – March 2021 on a like-for-like basis.

Subsidies paid by central government

In order to support individuals and the economy during the coronavirus (COVID-19) pandemic the government introduced two job furlough schemes, the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS).

While CJRS payments on an accrued basis for the period March 2020 to June 2021 are based on HM Revenue and Customs (HMRC) estimates, the July 2021 payment is based on the OBR’s latest estimates.

SEISS payments are currently recorded on a cash basis, consistent with HMRC coronavirus statistics.

Estimating monthly gross domestic product

Estimates of gross domestic product (GDP) used to present debt and other headline measures are partly based on provisional and official forecast data. Our July 2021 estimate of monthly GDP requires data across five quarters of GDP. Of these, two are based on the latest data published by the Office for National Statistics (ONS) on 12 August 2021 and three are based on the latest official forecasts published by OBR on 3 March 2021.

Payments to the EU

Though the UK’s regular monthly VAT and gross national income-based contributions to the EU’s budget stopped with effect from January 2021, we are still obliged to make further payments to the EU such as those outlined in the European Union (Withdrawal Agreement) Act 2020.

The Financial settlement under the Withdrawal Agreement represents a negotiated settlement of the UK’s financial commitments to the EU and the EU’s financial commitments to the UK, which result from the UK’s participation in the EU budget, and other commitments relating to our EU membership.

These payments, along with any similar future payments such as those outlined in the Withdrawal Agreement are recorded as central government expenditure, more specifically as a current transfer paid abroad.

As the time of payments is stipulated within the call for payment, this and future payments will be recorded as a component of borrowing when cash payments are made rather than at the point the call for payment is received from the EU.

Local government and public corporations

Both local government and public corporations’ data in the most recent periods are initial estimates, largely based on the Budget Responsibility (OBR) Economic and fiscal outlook (EFO) – March 2021, with adjustments being applied as needed.

In recent years, planned 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 2020, we include a £0.2 billion downward adjustment to Wales’ capital expenditure.

For FYE 2021 we include:

• a £0.7 billion downward adjustment to Scotland’s capital expenditure
• a £0.2 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 £1.0 billion downward adjustment to budget forecast current expenditure on benefits in FYE 2021, to reflect the most recently available data for housing benefits.