4. How much is the public sector borrowing?

In March 2019, the public sector spent more money than it received in taxes and other income, meaning it had to borrow £1.7 billion.

Figure 1 summarises public sector borrowing by sub-sector in March 2019 and compares this with the equivalent measures in the same month a year earlier (March 2018). This presentation splits public sector net borrowing excluding public sector banks (PSNB ex) into each of its four sub-sectors: central government, local government, public corporations and Bank of England.

Central government receipts in March 2019 increased by 3.1 billion (or 5%) compared with March 2018, to £65.1 billion, while total central government expenditure increased by 5.7% (or £3.5 billion) to £65.7 billion.

Much of this annual growth in central government receipts in March 2019 came from Income Tax-related revenue, with Pay As You Earn (PAYE) and National Insurance contributions increasing by £0.8 billion and £1.1 billion respectively.

This month, accrued receipts of Value Added Tax (VAT) increased by £0.4 billion compared with March 2018, however, accrued Corporation Tax (CT) receipts decreased by £0.1 billion over the same period. It is important to note that both of these taxes contain forecast cash receipts data and are liable to revision as actual cash receipts data are received.

Over the same period, there were notable increases in expenditure on goods and services, net social benefits, gross capital formation and capital transfers to the private sector of £1.9 billion, £0.6 billion, £0.6 billion and £0.8 billion respectively.

Unusually in March 2019, accrued interest on central government’s outstanding debt was recorded as a negative component of net borrowing. This was due to downward movements (between December 2018 and January 2019) in the Retail Prices Index (RPI) to which index-linked bonds are pegged.

The valuation of index-linked gilts is based on the value at issuance uplifted by the RPI. When RPI increases, this increases the value of the gilts stock and when it decreases, it decreases the value of the gilts stock. This movement in the stock of index-linked gilts is captured as accrued interest, which was negative this month due to a drop in the RPI. The negative figure does not reflect an actual flow of money into central government; in March 2019 central government’s cash outlay on interest (including gilt coupon payments) was £7.6 billion.

As explained, this fall in RPI reduces not only the accrued interest but also the stock of index-linked gilts and therefore contributes to a reduction in public sector net debt (PSND) of around £3 billion, although this is offset by other impacts on PSND.

Local government data for March 2019 are based on budget forecasts for England, Wales and Scotland, while public corporations data remain initial estimates, with most components calculated by the Office for National Statistics (ONS) based on the Office for Budget Responsibility (OBR) forecasts. In both cases, additional administrative source data are used to estimate transfers to each of these sectors from central government.

Figure 1: How each sector contributes to the growth in monthly borrowing March 2019, compared with March 2018, UK Source: Office for National Statistics – Public Sector Finances Notes: PSNBex – Public sector net borrowing excluding public sector banks. CGNB – Central government net borrowing. LGNB – Local government net borrowing. PCNB – Non-financial public corporations net borrowing. BoENB – Bank of England net borrowing. L&P – Land and property. I & W – Income and wealth. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget. NICs – National Insurance contributions. Download this image Figure 1: How each sector contributes to the growth in monthly borrowing .png (126.4 kB) .xls (91.1 kB)

Due to the volatility of the monthly data, the cumulative financial year-to-date (or full financial year as reported this month) borrowing figures often provide a better indication of the position of the public finances than the individual months.

In the latest full financial year (April 2018 to March 2019), public sector spending exceeded the money received in taxes and other income. This meant the public sector had to borrow £24.7 billion; that is, £17.2 billion less than the previous full financial year. Borrowing in this financial year is the lowest for any April to March period for 17 years.

The public sector spent £43.7 billion on capital items (or net investment), such as infrastructure, while the “day-to-day” activities of the public sector (current budget) were in surplus by £19.0 billion. Therefore the public sector borrowed £24.7 billion.

Figure 2 presents both monthly and cumulative public sector net borrowing (excluding public sector banks) in the latest full financial year (April 2018 to March 2019) and compares these with the previous financial year.

Figure 2: Cumulative borrowing remains lower than the same period last year Cumulative financial year (April 2018 to March 2019) borrowing, compared with the previous financial year (April 2017 to March 2018), UK Source: Office for National Statistics – Public Sector Finances Notes: OBR forecast for public sector net borrowing excluding public sector banks from March 2019 Economic and Fiscal Outlook (EFO). Download this chart Figure 2: Cumulative borrowing remains lower than the same period last year Image .csv .xls

Figure 3 summarises the contributions of each sub-sector to public sector net borrowing (excluding public sector banks) in the latest full financial year (April 2018 to March 2019) and compares these with the previous financial year.

The difference between central government's income and spending makes the largest contribution to the amount borrowed by the public sector. In the latest full financial year (April 2018 to March 2019), of the £24.7 billion borrowed by the public sector, £20.7 billion was borrowed by central government and £7.8 billion was borrowed by local government, while the borrowing of the Bank of England and public corporations was in surplus by £3.3 billion and £0.6 billion respectively.

In the latest full financial year (April 2018 to March 2019), central government received £739.4 billion in income, including £558.6 billion in taxes. This was 5% more than in the previous financial year.

Over the same period, central government spent £741.5 billion, an increase of around 3%. Of this amount, just below two-thirds was spent by central government departments (Education, Defence, Health and Social Care), around one-third was spent on social benefits (such as pensions, unemployment payments, Child Benefit and Maternity Pay), with the remainder being spent on capital investment and interest on government’s outstanding debt.

Figure 3: How each sector contributes to the growth in borrowing Latest full financial year (April 2018 to March 2019) compared with the previous financial year, UK Source: Office for National Statistics – Public Sector Finances Notes: PSNBex – Public sector net borrowing excluding public sector banks. CGNB – Central government net borrowing. LGNB – Local government net borrowing. PCNB – Non-financial public corporations net borrowing. BoENB – Bank of England net borrowing. L&P – Land and property. I & W – Income and wealth. Contributions to EU – UK VAT, GNI and abatement contributions to the EU budget. NICs – National Insurance contributions. Download this image Figure 3: How each sector contributes to the growth in borrowing .png (143.3 kB) .xls (81.4 kB)

Figure 4 illustrates that annual borrowing has been generally falling since the peak in the financial year ending (FYE) March 2010 (April 2009 to March 2010).

In the latest full financial year (April 2018 to March 2019), the £24.7 billion (or 1.2% of gross domestic product (GDP)) borrowed by the public sector was less than one-fifth (16.1%) of the amount seen in the FYE March 2010, when borrowing was £153.1 billion (or 9.9% of GDP).