Today the UK Public Finances are in the news and that is before we even get to the data release. This is because there has been a flurry of announcements on transport policy and the railways in particular. According to LBC we should soon get some clarity on out subject from a couple of days ago.

The Transport Secretary said he was making the biggest infrastructure decision taken in the UK in peacetime and promised it in “weeks rather than months”. Mr Shapps told LBC: “We are nearing the conclusion. I am now in the final stages of gathering all the data together for HS2, so it’s a mega decision for this country. “It’s maybe the biggest infrastructure project, certainly in Europe, and the biggest this country’s ever taken, certainly in peacetime. So we’ve got to get that right.

Bigger than when the Victorians built the railways? As opposed to one line! Also there were some announcements to help deal with what has been the headliner of the problems with UK railways.

Network Rail is being investigated over its poor service on routes used by troubled train operators Northern and TransPennine Express. The government-owned firm has been put “on a warning” for routes in the North West and central region of England, the Office of Rail and Road (ORR) said. The regulator said it was “not good enough” in those areas and was probing Network Rail’s contribution to delays. Network Rail apologised for “very poor service” in the Midlands and the North. (BBC )

The solution to that problem according to the Transport Minister is to build a new railway for somewhere above £10 billion and in the meantime spend some £2.9 billion on improving the existing line. That is rather vague as it lacks timescales and will we be making improvements just in time to close them? But the issue here for the public finances is that the UK government is more willing to spend than it was. There is also an issue as to why if traffic on these railways has expanded so much why money has not been spent along the way to help it cope? That of course goes much wider as we note energy infrastructure where yet again we see an enormously expensive project after years and indeed decades of little action.

Today’s Data

We open with something against the recent trend.

Borrowing (public sector net borrowing excluding public sector banks, PSNB ex) in December 2019 was £4.8 billion, £0.2 billion less than in December 2018.

Maybe it is just a quirk that we borrowed less as the monthly numbers are volatile. But we do perhaps get a little more from this.

Central government receipts in December 2019 increased by £2.2 billion (or 3.7%) to £62.2 billion, compared with December 2018, while total central government expenditure increased by £1.7 billion (or 2.7%) to £63.9 billion.

As you can see the rise in receipts even if we use the highest inflation measure ( RPI) hints at a better growth rate than we are expecting from the GDP data. This does tie in with the employment and wages numbers we looked at yesterday. But only in a broad sweep because of this.

Central government receipts were boosted by increases in National Insurance contributions (NICs) of £0.5 billion, interest and dividends receipts of £0.3 billion, and across many of the taxes on production (such as Value Added Tax (VAT), tobacco duty and stamp duty) totalling £1.1 billion. Taxes on income and wealth saw a small reduction (less than £0.0 billion), with an increase in petroleum revenue tax of £0.3 billion being offset by decreases in both Corporation Tax and Income Tax receipts of £0.3 billion and £0.1 billion respectively.

The highlighted part is because after yesterday’s data you might reasonably expect higher income tax payments and I was asked this question yesterday. Yet as you can see we got 0! It may be that due to the changes in the Personal Allowance that the National Insurance numbers are a better measure. So my answer goes from a no, to definitely,maybe.

There is also some awkwardness with the production receipts when we are being told production is struggling and in the latter part of 2019 retail moved from growth to decline. So let us note that these numbers hint at a stronger economy than we otherwise would have thought.

So far you might reasonably be wondering where the fiscal stimulus has gone? Well if you add the number below back in you can see that the deficit number was in fact driven by lower inflation rather than lower general government spending.

Interest payments on the government’s outstanding debt decreased by £1.1 billion, compared with December 2018.

Perspective

If we look back we see stronger signs of a fiscal boost than seen in December alone.

Borrowing in the current financial year-to-date (April 2019 to December 2019) was £54.6 billion, £4.0 billion more than in the same period last year.

Although care is needed as the numbers well they keep seeing ch-ch-changes.

ONS revisions again significantly lowered estimated borrowing in the earlier months of the

financial year. Last month, borrowing was revised down by £5.2 billion for earlier months while

this month’s release reduced borrowing by a further £1 billion. The ONS has also revised down 2018-19 borrowing by £3.3 billion in this month’s release. ( OBR last month)

Assuming the numbers are accurate we see that the rise in borrowing so far this year has not only been caused by more spending but also by weakish receipts.

In the current financial year-to-date, central government receipts grew by 2.3% on the same period last year to £548.2 billion, including £402.7 billion in tax revenue.

On that road we see again a hint of a pick-up in the economy in December.

The National Debt

This turns out to be a complex issue and the simple version is this.

Debt (public sector net debt excluding public sector banks, PSND ex) at the end of December 2019 was £1,819.0 billion (or 80.8% of gross domestic product, GDP); this is an increase of £35.5 billion (or a decrease of 0.9 percentage points) on December 2018.

Actually the Bank of England managed to make things even more complex as one of its bank subsidies ended up boosting the national debt.

Debt at the end of December 2019 excluding the Bank of England (BoE) (mainly quantitative easing) was £1,644.2 billion (or 73.0% of GDP); this is an increase of £48.0 billion (or a decrease of 0.1 percentage points) on December 2018.

Actually it was the Term Funding Scheme which was badly designed rather than QE as the release seems to realise later.

The introduction of the Term Funding Scheme (TFS) in September 2016 led to an increase in public sector net debt (PSND), as the loans provided under the scheme were not liquid assets and therefore did not net off in PSND (against the liabilities incurred in providing the loans). The TFS closed for drawdowns of further loans on 28 February 2018 with a loan liability of £127.0 billion.

Unfortunately I seem to be the only person who ever calls out the Bank of England about this.

Comment

There are three lessons from today’s numbers. The first is that there is an ongoing fiscal boost especially if we allow for the impact of lower debt costs via lower inflation ( RPI). Next we again see a hint of the UK economy being stronger than indicated by economic output or GDP if December’s receipts data are to be relied upon. However and thank you to Fraser Munro of the Office for National Statistics for replying there is always doubt as the December income tax receipts are a forecast rather than a known number.

PAYE in December is based on HMRC’s cash forecast for January so we could see a revision next month.

So the truth is that the numbers are a rather broad brush and on that theme let me end with some national debt numbers which are internationally comparable.

General government gross debt was £1,821.9 billion at the end of the financial year ending March 2019, equivalent to 84.0% of gross domestic product (GDP) and 24.0 percentage points above the reference value of 60.0% set out in the protocol on the excessive deficit procedure.

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