Public sector finances, UK: May 2023

• Public sector net borrowing (PSNB ex) in May 2023 was £20.0 billion, £10.7 billion more than in May 2022 and the second-highest May borrowing since monthly records began in 1993, with the growth in receipts being exceeded by the additional costs of the energy support schemes and increases in both benefit payments and staff costs.

• PSNB ex in the financial year to May 2023 was £42.9 billion, £19.6 billion more than in the same two-month period last year and £2.1 billion higher than the £40.8 billion forecast by the Office for Budget Responsibility (OBR).

• Our initial estimate of net debt expressed as a percentage of gross domestic product (GDP) for May 2023 should be treated as highly provisional and likely to be revised in future publications because it partly relies on GDP estimates based on the latest OBR forecast; more information is available in Section 12: Strengths and limitations.

• Public sector net debt (PSND ex) at the end of May 2023 was £2,567.2 billion and provisionally estimated at 100.1% of GDP.

• The last time the debt-to-GDP ratio was above 100% was March 1961; during the coronavirus pandemic early provisional estimates initially indicated that the debt-to-GDP ratio reached this level, prior to being revised down when stronger GDP data replaced initial forecasts.

• Excluding the Bank of England, debt was £2,298.6 billion or provisionally around 89.6% of GDP, £268.6 billion (or 10.5 percentage points of GDP) lower than the wider measure.

• Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was £17.0 billion in May 2023, £2.3 billion above the £14.7 billion OBR forecast.

• Public sector net worth (PSNW ex) was in deficit by £617.1 billion at the end of May 2023; this compares with a £539.1 billion deficit at the end of May 2022.

The public sector spent more than it received in taxes and other income, in May 2023, requiring it to borrow £20.0 billion. This was more than double of the £9.4 billion borrowed in May 2022 and the second highest May borrowing since monthly records began in 1993, behind May 2020.

Central government forms the largest part of the public sector and the relationship between its receipts and expenditure is the main determinant of public sector borrowing.

In May 2023, central government borrowed £20.9 billion, £10.7 billion more than in May 2022 and £4.1 billion more than the £16.8 billion forecast by the Office for Budget Responsibility (OBR).

Central government's receipts were £71.3 billion, £2.3 billion more than in May 2022 and £0.5 billion lower than the £71.8 billion forecast by the OBR. Of this £71.3 billion, tax receipts were £52.7 billion, £2.1 billion more than in May 2022.

Compared with May 2022, receipts of compulsory social contributions fell by £1.2 billion to £13.4 billion. This was largely because a temporary higher rate for the Health and Social Care Levy was introduced in April 2022 and later removed in November 2022.

A detailed breakdown of public sector income is presented in our Public sector current receipts: Appendix D.

Over the same period, total central government expenditure grew by £13.0 billion to £92.2 billion, £3.6 billion higher than the £88.6 billion forecast by the OBR.

The interest payable on central government debt

In May 2023, the interest payable on central government debt was £7.7 billion, £0.2 billion less than in May 2022, but £0.7 billion above the OBR's forecast of £7.0 billion.

On 18 July 2022, we published our The calculation of interest payable on government gilts methodology.

Staff costs

In May 2023, central government staff costs were £17.6 billion, £3.4 billion more than in May 2022. This increase was largely because of the £2.7 billion non-consolidated National Health Service pay deal in England. For more information on the Agenda for Change pay deal see the Department of Health and Social Care's (DHSC's) media fact sheet.

Energy support payments

In May 2023, central government spent £3.6 billion on subsidies, £1.4 billion more than in May 2022. This growth was largely because of the combined cost of the Energy Price Guarantee for households and the Energy Bills Discount Scheme for businesses across the UK, estimated at around £1.5 billion this month.

Net social benefits

Net social benefits paid by central government in May 2023 were £22.9 billion, £2.9 billion more than in May 2022. This increase was largely because of inflation-linked benefits uprating.

Public sector net borrowing (PSNB ex) in the financial year to May 2023 was £42.9 billion, £19.6 billion more than in in the same two-month period last year.

In the financial year to May 2023, central government borrowed £56.6 billion, £31.7 billion more than in the same period a year earlier.

The £3.2 billion growth in central government receipts in the financial year to May 2023 compared with the same period a year earlier was exceeded by:

• the additional costs of the energy support scheme (up £3.4 billion)

• increases in benefit payments (up £7.1 billion)

• staff costs (up £4.6 billion)

• procurement (up £2.7 billion)

• higher debt interest payable (up £2.6 billion)

Central government's (net) investment spending increased by £13.9 billion over the same period with £9.8 billion being paid to the Bank of England (BoE) under the Asset Purchase Facility (APF) Fund indemnity agreement. This central expenditure has reduced the BoE's contribution to public sector net borrowing by a corresponding amount.

A breakdown of net borrowing by sub-sector and a summary of central government receipts and expenditure data are presented in Tables 1 to 3 in our Public sector finances summary tables: Appendix M.

Since our Public sector finances, UK: April 2023 bulletin published on 23 May 2023, we have reduced our estimate of borrowing for the 12 months to March 2023 by £3.0 billion, to £134.1 billion.

This was £11.8 billion more borrowing than in the financial year ending (FYE) 2022. It remains the fourth highest FYE borrowing since monthly records began, behind FYE 2021 (during the coronavirus (COVID-19) pandemic) and both the FYE 2010 and FYE 2011 (after the effects of the global financial downturn).

Public sector borrowing consists of two broad components: the current budget deficit and capital expenditure (or net investment). In the FYE 2023, the public sector current budget deficit (or borrowing to fund day-to-day activities) was £81.7 billion, £8.0 billion more than in FYE 2022. Over the same period, public sector net investment increased by £3.8 billion to £52.4 billion.

Expressing borrowing as a ratio of gross domestic product (GDP) (the value of the output of the economy) gives an estimate of its affordability and provides a more robust comparison of the UK's fiscal position over time.

The coronavirus (COVID-19) pandemic had a substantial impact on the economy as well as public sector borrowing. Expressed as a proportion of GDP, borrowing in the financial year ending (FYE) March 2021 was 15.0%, the highest for 75 years.

This proportion fell by 9.8 percentage points to 5.2% in the FYE March 2022 as the economy recovered from the coronavirus pandemic. However, initial estimates show that for the 12 months to March 2023, the proportion has risen by 0.1 percentage points to 5.3%, in part because of the impact of energy prices on the economy and public finances.

The balance sheet describes the financial position at a point in time. It shows the liabilities, (amounts owed) and the assets (amounts owned).

There are several measures of the public sector balance sheet which we discuss in our blog What the UK government owns and what it owes. Here we consider the narrowest measure, which is the redemption value of central government gilts issued by the UK government's Debt Management Office. We build upon this measure by widening coverage by both the sub-sector and the range of asset and liability types included to reach the far wider measure of public sector net worth, as explained in our methodology guide.

Our Public sector balance sheet tables: Appendix N presents a detailed reconciliation between the balance sheet measures summarised in Table 2.

Public sector net debt

The most widely used balance sheet measure is public sector net debt excluding public sector banks (PSND ex). It comprises the excess of the public sector's financial liabilities (in the form of loans, debt securities, deposit holdings and currency) over its liquid financial assets (mainly foreign exchange reserves and cash deposits), with both measured at face or nominal value. 

Expressing debt as a ratio of gross domestic product (GDP) (the value of the output of the economy) gives an estimate of its affordability and provides a more robust comparison of the UK's balance sheet over time.

At 100.1% of GDP, the debt-to-GDP ratio at the end of May 2023 has exceeded 100% for the first time since March 1961. However, this should be treated as a first, provisional estimate and it is likely to be revised in future publications because it partly relies on GDP estimates based on the latest Office for Budget Responsibility (OBR) forecast. More information is available in Section 12: Strengths and limitations.

The Bank of England's contribution to net debt

Public sector net debt excluding the Bank of England (BoE) was £2,298.6 billion, or around 89.6% of GDP, £268.6 billion (or 10.5 percentage points of GDP) less than the wider measure. This difference is largely a result of the BoE's quantitative easing activities, including the gilt-purchasing activities of the Asset Purchase Facility (APF) Fund.

The APF's gilt holding is not recorded directly as a component of public sector net debt. Instead, in May 2023, we record the £108.5 billion difference between the £811.0 billion of reserves created to purchase its gilts (at market value) and their £702.5 billion redemption value.

Table PSA9A in our Public sector finances tables 1 to 10: Appendix A details the BoE's contribution to public sector net debt.

NatWest share sales

On 22 May 2023, the government announced the sale of £1.26 billion of NatWest shares and in doing so, reduced its stake to 38.6%, down from around 84% at its peak.

This transaction has no impact on public sector net borrowing, however the cash raised from the sale reduced central government net cash requirement in May 2023 by a corresponding amount and so reduced the increase in public sector net debt.

Public sector net worth

Public sector net worth excluding public sector banks (PSNW ex) was a deficit of £617.1 billion at the end of May 2023. This compares with a £539.1 billion deficit at the end of May 2022.

The main reason for the £78.0 billion deterioration in PSNW ex over the last year was a £164.9 billion increase in PSND ex, partly offset by a £89.8 billion increase in public sector non-financial assets. 

If we exclude the public sector's £1,604.3 billion of non-financial assets, the public sector net financial worth excluding public sector banks (PSNFW ex), deteriorated by £167.8 billion over the same period to a deficit of £2,053.6 billion.

PSNFW ex is equivalent to public sector net financial liabilities excluding public sector banks (PSNFL ex), expressed with the reverse sign.

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

Tables 4 to 6 of our Public sector finances summary tables: Appendix M compare our latest public sector finances data with those published in our Public sector finances, UK: April 2023 bulletin published on 23 May 2023 and highlight the revisions to borrowing by sub-sector, central government receipts and expenditure.

Revision to net borrowing (PSNB ex) in April 2023

Since our Public sector finances, UK: April 2023 bulletin published on 23 May 2023, we have reduced our estimate of borrowing in April 2023 by £2.7 billion. This change was largely because of a £3.5 billion increase to our previous estimate of central government receipts, reflecting that May cash receipts were higher than forecast.

While there is still a slight year-on-year reduction in National Insurance contributions (NICs), because of there being a lower rate in place compared with a year earlier, this effect now appears to have been counterbalanced by cash receipts being higher than forecast.

Revision to net borrowing (PSNB ex) in the financial year ending (FYE) March 2023

Since our Public sector finances, UK: April 2023 bulletin published on 23 May 2023, we have reduced our estimate of borrowing for the 12 months to March 2023 by £3.0 billion. This change was largely because of a £3.0 billion increase to our previous estimates of central government receipts, compounded by a £2.8 billion reduction to our previous estimate of central government expenditure. Additionally, we have increased our previous estimate of public sector-funded pension schemes' contribution to net borrowing by £1.5 billion over the financial year, partially offsetting the reduction to central government net borrowing.

Changes to public sector funded pensions data

This month we have updated our public sector funded pensions data to reflect data updates related to the Local Government Pension Scheme actuarial valuation and methodological improvements already published in the UK National Accounts.

While the impact of this update begins in the FYE 1998, the largest revision to borrowing occurs in the FYE March 2023, where a combination of a £1.5 billion increase to the public sector funded pension schemes' contribution to net borrowing and a £0.3 billion increase in local government borrowing result in an increase £1.8 billion to PSNB ex. This update has no effect on net debt. Further detail on this update and its impacts are available in our Recent and upcoming changes to public sector finance statistics: May 2023 article.

Bulb Energy Limited

This month we have implemented the re-classification of Bulb Energy Limited from the private to the public sector, more specifically to the public non-financial corporations' subsector, with effect from 24 November 2021.

The impact of this change is relatively small in terms of public sector net borrowing, reducing it by £0.2 billion in FYE 2023 and having no impact on net debt at the end of March 2023. Further detail on this update is available in our Recent and upcoming changes to public sector finance statistics: May 2023 article.

Revision to net debt (PSND ex) at the end of March 2023

Since our Public sector finances, UK: April 2023 bulletin published on 23 May 2023, we have increased our estimate of debt at the end of April 2023 by £0.2 billion. This change is partially because of regular monthly updates to our estimate of the Bank of England and Network Rail contributions to public sector net debt, which combined reduced debt by £1.1 billion. However, this change was offset by regular quarterly updates of our Local government and public corporations dataset.

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). The figures presented in this release exclude public financial corporations unless otherwise noted.

Public sector current budget deficit

Public sector current budget deficit (PSCB) is the gap between current expenditure and current receipts on an accruals basis, having taken account of depreciation. The current budget is in surplus when receipts are greater than expenditure and is indicated with a negative sign.

Public sector net borrowing

Public sector net borrowing (PSNB) is the gap between total expenditure and current receipts on an accruals basis. If receipts exceed expenditure, this is referred to as a surplus and is indicated with a negative sign. Borrowing is often referred to by commentators as "the deficit".

Central government net cash requirement

The central government net cash requirement (CGNCR) represents the cash needed to be raised from the financial markets over a period to finance its activities. The amount of cash required will be affected by changes in the timing of payments to and from the public sector rather than when these liabilities were incurred.

Public sector net debt

Public sector net debt (PSND) represents the amount of money the public sector owes to the private sector and overseas, net of liquid financial assets held, and is often referred to by commentators as "the national debt".

Public sector net financial liabilities

Public sector net financial liabilities (PSNFL) are a wider measure of the balance sheet than public sector net debt and includes all financial assets and liabilities recognised in the National Accounts. 

Public sector net worth

Public sector net worth (PSNW) is the widest measure of the balance sheet, broadening the PSNFL measure by considering the public sector's non-financial assets.

Comparing our data with official forecasts

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

Every month the OBR publishes a brief analysis of the latest public sector finances, explaining how it should be interpreted considering its most recent public finances forecast for the current financial year.

Tax receipts

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

The forecasts underlying our current tax estimates reflect the expectations published in the Office for Budget Responsibility's (OBR's) Economic and fiscal outlook – March 2023.

Local government and public corporations

Both local government and public corporations' data in the most recent periods are initial estimates, largely based on OBR's Economic and fiscal outlook (EFO) – March 2023, with adjustments being applied as needed.

In recent years, planned local government expenditure initially reported in local authority budgets has been systematically lower than final outturn current expenditure reported in the audited accounts and higher than that reported in final outturn capital expenditure. We therefore include adjustments to increase or decrease the amounts reported at the budget stage. For the financial year ending (FYE) 2023, we include a:

• £0.8 billion downward adjustment to Scotland's capital expenditure

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

• £4.0 billion upward adjustment to England's current expenditure on goods and services

We apply a further £1.4 billion downward adjustment to budget forecast current expenditure on benefits in the FYE 2023, to reflect the most recently available data for housing benefits.

Public corporations' data in the FYE 2023 are also largely based on EFO, although supplemented by in-year data replacing previous estimates for train operating companies, the Housing Revenue Account and surveyed public corporations.

Expressing public sector net debt as a percentage of Gross Domestic Product

Expressing public sector net debt excluding public sector banks (PSND ex) as a ratio of gross domestic product (GDP) (the value of the output of the economy) gives an estimate of its affordability and provides a more robust comparison of the UK's balance sheet over time.

At 100.1% of GDP, the debt-to-GDP ratio at the end of May 2023 has exceeded 100% for the first time since March 1961. However, this should be treated as a first, provisional estimate and it is likely to be revised in future publications because it partly relies on GDP estimates based on the latest OBR forecast.

Our The use of GDP in public sector fiscal ratio statistics methodology, published 21 September 2016, explains the calculation of debt-to-GDP ratio figures reported in the monthly public sector finances, for which a 12-month GDP total centred on the current month is used.

Our GDP estimate for May 2023 is currently based on two-quarters of the Office for National Statistics' (ONS's) published estimates (2022Q4 to 2023Q1) and three-quarters of OBR based forecasts (2023Q2 to 2023Q4). These OBR-based forecasts will be replaced in the coming months with ONS estimates, each time they are likely to revise the May 2023 debt-to-GDP ratio.

For example, we previously reported that the debt-to-GDP ratio exceeded 100% during the coronavirus (COVID-19) pandemic in the summer of 2020. We subsequently revised it down when the provisional forecast of GDP used for this period of economic uncertainty was replaced by outturn data.

Estimating the cost of the energy support schemes

Though fully reflected in our central government expenditure estimates, the costs of the individual energy support schemes are not yet separately identifiable in our source data.

Expenditure on the energy price cap schemes, Energy Price Guarantee (EPG) for households and the Energy Bill Relief Scheme (EBRS) for business customers, is recorded within our "subsidies" data. To provide an indicative estimate of their combined cost between October 2022 and March 2023, we have highlighted the £29.7 billion forecast published in the OBR's Economic and fiscal outlook – March 2023.

In April 2023, EBRS was replaced by the Energy Bills Discount Scheme (EBDS). To provide an estimate of the cost of the combined EPG and EBDS in the current financial year, we highlight the OBR monthly forecast published in its March 2023 Economic and fiscal outlook monthly profiles (XLSX, 125KB).

The cost of the energy support schemes paid directly to consumers in the six months to March 2023 was recorded within "other current expenditure" data. While payments under the Energy Bills Support Scheme (EBSS) to consumers in Great Britain, totalling £11.5 billion are published separately, we cannot separately identify and highlight the expenditure on the other smaller schemes under the wider EBSS umbrella within our dataset. The EBSS closed in March 2023.