4. How much is the public sector borrowing?

In December 2018, the public sector spent more money than it received in taxes and other income. This meant it had to borrow £3.0 billion; that is, £0.3 billion more than the same period in December 2017. With the exception of the £2.7 billion borrowed in December 2017, this was the lowest December borrowing for 18 years.

Of this £3.0 billion, £2.9 billion was borrowed by central government and £1.1 billion by local government, while the Bank of England recorded a surplus borrowing of £0.9 billion.

Central government receipts in December 2018 increased by 4.3% compared with December 2017, to £59.8 billion, while total central government expenditure increased by 5.3% to £61.2 billion.

Much of this annual growth in central government receipts in December 2018 came from Value Added Tax (VAT), Income Tax, Rail Franchise Premia and National Insurance contributions compared with December 2017.

Over the same period, there were notable increases in expenditure on goods and services, along with net social benefits.

The UK’s net contribution to the European Union (EU) was £1.5 billion higher than in December 2017. As explained in Section 3 of this bulletin, while December 2017 saw an overall credit to the UK of £1.2 billion, December 2018 saw a much smaller amount returned to the UK, hence an overall contribution to the EU of £0.3 billion.

Interest payments on the government’s outstanding debt have decreased, due largely to movements in the Retail Prices Index to which index-linked bonds are pegged.

Figure 1 summarises public sector borrowing by sub-sector in December 2018 and compares this with the equivalent measures in the same month a year earlier (December 2017). 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.

While local government data for December 2018 are based on budget forecasts for England, Wales and Scotland, public corporations data remain initial estimates, with most components calculated by Office for National Statistics (ONS) based on 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: Contributions to public sector net borrowing (excluding public sector banks) by sub-sector December 2018, compared with December 2017, UK Source: Office for National Statistics 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: Contributions to public sector net borrowing (excluding public sector banks) by sub-sector .png .xls

Due to the volatility of the monthly data, the cumulative financial year-to-date borrowing figures often provide a better indication of the position of the public finances than the individual months.

In the financial year-to-date (YTD) (April to December 2018), public sector spending exceeded the money received in taxes and other income. This meant the public sector had to borrow £35.9 billion; that is, £13.1 billion less than the same period in 2017. Borrowing so far this financial year was the lowest for any April to December period for 16 years.

Of the £35.9 billion borrowed by the public sector in this period, £10.0 billion related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £26.0 billion was capital spending (or net investment), such as on infrastructure.

Figure 2 presents both monthly and cumulative public sector net borrowing (excluding public sector banks) in the current financial YTD (April to December 2018) and compares these with the previous financial year.

Figure 2: Public sector net borrowing (excluding public sector banks) Cumulative financial year-to-date (April to December 2018) compared with the financial year ending March 2018 (April 2017 to March 2018), UK Source: Office for National Statistics Notes: OBR forecast for public sector net borrowing excluding public sector banks from October 2018 Economic and Fiscal Outlook (EFO). Download this chart Figure 2: Public sector net borrowing (excluding public sector banks) Image .csv .xls

Figure 3 summarises the contributions of each sub-sector to public sector net borrowing (excluding public sector banks) in the current financial YTD (April to December 2018) and compares these with the same period in 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 financial YTD (April to December 2018), of the £35.9 billion borrowed by the public sector, £36.2 billion was borrowed by central government and £0.3 billion by local government, while the borrowing of Bank of England was in surplus by £0.5 billion.

In the current financial YTD, central government received £531.3 billion in income, including £399.1 billion in taxes. This was around 5% more than in the same period in 2017.

Over the same period, central government spent £553.5 billion, around 3% more than in the same period in 2017. Of this amount, just below two-thirds was spent by central government departments (such as health, education and defence), around one-third 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: Contributions to public sector net borrowing (excluding public sector banks) by sub-sector Current financial year-to-date (April to December 2018) compared with the same period last year, UK Source: Office for National Statistics 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: Contributions to public sector net borrowing (excluding public sector banks) by sub-sector .png .xls

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 2017 to March 2018), the £41.9 billion (or 2.0% of gross domestic product (GDP)) borrowed by the public sector was around one-quarter of the amount seen in the FYE March 2010, when borrowing was £153.1 billion (or 9.9% of GDP).