The UK Public Finances finally improve even with £5.5 billion lost down the back of the sofa

Today in something of a coincidence of timing so soon after the Budget Statement we will receive or by the time you read this have received the latest UK public finances data. One thing that the data will not tell us is this.

public sector net borrowing (PSNB) to fall from 11.0 per cent of GDP in 2009-10 to 1.1 per cent in 2015-16.

public sector net debt (PSND) to increase from 53.5 per cent of GDP in
2009-10 to a peak of 70.3 per cent in 2013-14, falling to 69.4 per cent in 2014-15 and 67.4 per cent in 2015-16;

the cyclically-adjusted current budget deficit of 5.3 per cent of GDP in 2009-10 to be eliminated by 2014-15 and reach a surplus of 0.8 per cent of GDP in 2015-16

The numbers above were from the June 2010 Budget analysis of the Office for Budget Responsibility that of course has turned out to be anything but responsible! Oh well. Reality has not been a friend of theirs. Even the boost to UK GDP (Gross Domestic Product) from the ESA 10 inspired changes has not helped them much compared to the scale of the errors at play here.

You may note that the UK National Debt as a proportion of GDP was supposed right now to be taking the advice of Alicia Keys.

Oh baby
I, I, I, I’m fallin’
I, I, I, I’m fallin’

I keep on


They get going at this game although there is a confession tucked away in their latest effort. Also I note that target has followed target has followed target which speaks for itself.

Public sector net debt is forecast to peak in 2014-15 and to fall by 0.2% of GDP in 2015 16 and a further 0.5 per cent of GDP in 2016 17, thereby meeting the new supplementary target. The previous target would also have been met the first time we have forecast debt falling as a share of GDP in 2015-16 since March 2012.


Where is the UK National Debt?

You may note that the official view is invariably that our national debt to GDP ratio is falling. Indeed  I pointed out on Share Radio that at one point in this weeks Budget Statement Chancellor George Osborne told us that the National Debt was about to fall! If we look at today’s data we immediately have a problem.

At the end of February 2015, public sector net debt excluding public sector banks (PSND ex) was £1,468.5 billion (79.6% of GDP); an increase of £83.6 billion compared with February 2014.


As you can see it has fallen to a higher number as 79.6% has replaced the 69.4% it was supposed to be now. I guess fallen and falling need to go into my financial lexicon for these times! Sadly as I have pointed out before the saga does not stop there as the UK uses a much more favourable measure of its national debt than what is considered to be the international standard so let me show that too.

At the end of February 2015 General Government Gross Debt (Maastricht debt) was £1,583.3 billion (85.8% of GDP).

Don’t get a job involving numbers

Someone who had that on their school report back in the day seems to have taken no notice of it.

The public sector net debt has been revised upwards by £5.5 billion, from October 2014, as the result of a correction to previously published estimates which were erroneously double counting bank deposits held by the central government body, UK Asset Resolution Ltd.

Quite a bit to find down the back of the sofa isn’t it? If they have apologised for such an error then they must have forgotten to put it on their website. I guess it would be silly to enquire as to whether anybody has been sacked as we already know that large errors are not anybodies responsibility as opposed to minor errors which of course are.

A New Hope

For some time the UK fiscal deficit figures were fairly resistant to the improving economic trends that started at the beginning of 2013. Projecting past trends would put us in a lot better place than we are. However 2015 has started more hopefully such that today we have been told this.

From April 2014 to February 2015, public sector net borrowing excluding public sector banks (PSNB ex) was £81.8 billion; a decrease of £8.8 billion compared with the same period in 2013/14.

So finally we are seeing an improvement of decent size on last year and if we look at February’s numbers we see why.

In February 2015, PSNB ex was £6.9 billion; a decrease of £3.5 billion compared with February 2014.

Tucked away in the detail was a better report from something which in the early part of this fiscal year was very troubled which is income tax revenue.

the total self-assessment recorded in January and February 2015 was £15.0 billion; an increase of £1.9 billion on the same period in 2014.

Perhaps we are finally seeing the benefits for the public finances in the increase in the numbers of self-employed. If so it may be late but it is nonetheless more than welcome. Indeed there was a general improvement in revenues.

VAT receipts increased by £0.2 billion, or 1.8%, to £10.1 billion;
corporation tax increased by £0.2 billion, or 11.9%, to £1.6 billion;

Have the VAT revenues been nudge lower by the disinflationary trends in the retail sector? If so the position there is better than it looks. Also regular readers will have a wry smile at the laggard.

stamp duties (on shares, land & property) decreased by £0.1 billion, or 9.6%, to £0.9 billion.

Maybe we are seeing a sign of a cooling UK property market? Or perhaps the numbers in this sector have risen so far and so fast that they have run out of puff.

Also expenditure was lower than last year by £1.5 billion with two things regularly discussed on here playing a role.

debt interest decreased by £0.4 billion, or 9.3%, to £4.0 billion.

Firstly we have the fall in inflation (RPI is now 1.1% per annum) meaning that our inflation linked debt costs will be lower and secondly the impact of lower Gilt yields will be helping too although that takes much longer to have a real impact.

A Welcome Change

The significance of this move will be missed by many and those that read it may not understand it. What it means is that we are beginning to account for some of the payments we make to international organisations like the African Development Bank

 the treatment of UK Government subscriptions to the IDA has changed to record them as capital transfers (which impact net borrowing) instead of the current treatment as equity injections (which don’t impact net borrowing).

Up until now we carried on assuming it was in essence free money. Why? Well because there is a cost for this. We still preserve such fantasy economics and accountancy with the European Investment Bank sadly so there is still work to be done.


There is an elephant in the room so let me address it directly, I think that the proximity of the General Election is not an explicit factor in the improvement in UK public finances. We now seem to be in a welcome phase where our economic growth is having a beneficial effect and I welcome that. However even with this we remain a country with a large fiscal deficit which our political parties will no doubt misrepresent and obfuscate over the next two months. Also even the OBR must ocassionally get something right…..

Nice To See the Bank of England catching up

Readers will be aware that I have been arguing since December 2013 that a cut in UK Base Rates is as likely as a rise . Accordingly I note this from Bank of England chief Economist Andy Haldane.

I think the chances of a rate rise or cut are broadly evenly balanced.

If they had put me on the Monetary Policy Committee everybody could have been told that 15 months ago!

All About That Bass

I was involved in a discussion yesterday about songs with the best bass lines. So here are some suggestions.

Fools Gold by The Stone Roses
The Chain by Fleetwood Mac
Billie Jean by Michael Jackson
Over to you….


26 thoughts on “The UK Public Finances finally improve even with £5.5 billion lost down the back of the sofa

  1. Hi Shaun
    A question for you ( in two parts).
    Over a reasonable period of time would a negative interest rate of 2% have the same effect as a 2% inflation rate on a CB’s ‘targets’ ?
    As the disinflationary effect of China’s unwinding is here to stay for some time, does this mean negative rates will be employed for the same time period?

    • Hi JW

      To answer your first question in some ways it feels like it should be but the answer is no for two main reasons. The first is simple assymetry as we as humans behave differently with negative numbers of this sort. The second is that whilst inflation benefits the banking system negative interest-rates poses a few questions for it such as will savers accept negative interest-rates? This was seen in Denmark last week as they changed the rules to protect “the precious”

      Your second question is much easier which is that unless we get a “something wonderful” the answer is yes.

      • Hi Shaun
        The rationalisation for the first question was that 2% inflation erodes the value of money by that amount; and a -2% interest rate means that the CB gets the same amount of money paid to itself ( ie is ‘destroyed’). Aren’t these equivalent, in that they both ‘remove’ 2% of the value of the fiat?
        I agree that the perception and emotional response from the ‘populace’ is another matter entirely.

  2. Shaun

    How about these for baselines:

    Expansions – Lonnie Liston Smith
    Aquarian Sound – David S Ware &
    Psycho Killer – Talking Heads.

  3. Shaun,
    Lower VAT from fuel purchases perhaps?
    Surprised at higher income tax receipts early 2015 but see Corporation tax still much less than VAT .
    Suggest IDA contributions included as part of our aid budget targets!

    • Hi Chris

      Yes I like the latter idea :). Sadly our political establishment love basking in the glow of spending our money so it is unlikely. Also I am a fan of aid when a place is really in trouble like those islands which recently suffered from cyclones but other parts often just entrench corruption both here and there.

  4. Shaun, there are few worse crimes than going against the official view and being proved right. If you want to get on the MPC you need to agree with the official view, even if it is obviously wrong.

      • Hi therrawbuzzin

        Thanks for the songs. I have been a fan of The Who for some time but was only recently made fully aware of the influence of Jack Bruce of Cream. He blazed something of a trail for bass players who were also a lead singer according to BBC4 which somewhat underplays a certain P.McCartney perhaps but made a point.

  5. Try picking your favourite track ever. A Desert Island Disk’s worth is easy but just one…?

    So many songs I listen to and it is only on 2nd (and beyond) listening I realise the bass held it all together. How about “You can call me Al” for something off the wall.

    I just wish you did not expose so much with your analyses. I could be sailing on in blissful ignorance but for you! Got a decent drone – just looking for a good missile system to attach to it. Keep going please…as I’ve said before.

  6. Bass is the modest king…
    Dancing in the Moonlight, Phil Lynott, always underestimated as a player…
    Come Together, perhaps the Beatles’ best bass moment…
    and a little less modest, but kicking it…
    School Days, Stanley Clarke and George Duke, clip below, if you don’t have time for all of it, skip to 2:30 and stand back in awe at Stanley’s bassomatic decorum, letting Duke groove it and laying down the bedrock groove…

  7. IMO John Entwistle was one of the best bassists.

    Smoke on the water by Deep Purple (simple but brilliant)

    Ball and biscuit by The Whitestripes (outrageous but absolutely brilliant


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