Prime Minister Sunak continues to sing along with Hey Big Spender

This morning has brought us up to date on the UK’s public sector finances. Although not fully up to date as the recent upgrades to the UK’s economic output or GDP are not on there. We can start with something which has been generally true in the Rishi Sunak era and I mean whether he has been Chancellor of the Exchequer or Prime Minister.

Public sector net borrowing excluding public sector banks (PSNB ex) in August 2023 was £11.6 billion, £3.5 billion more than in August 2022 and the fourth highest August borrowing since monthly records began in 1993.

It is hard to avoid the feeling that he sings along with Shirley Bassey.

The minute you walked in the joint
I could see you were a man of distinction
A real big spender
Good lookin’ so refined

There was another example of this yesterday.

UK PM SUNAK: GRANTS TO UPGRADE RESIDENTIAL GAS BOILERS WILL RISE TO 7,500 POUNDS, FROM 5,000 POUNDS || WE’RE GIVING PEOPLE FAR MORE TIME TO MAKE THE TRANSITION TO HEAT PUMPS ( @FirstSquawk)

As I live in a flat it does not apply to me anyway but this is a very expensive technology which needs a lot of other help such as insulation and new radiators. All he is doing is shifting some of the bill from the individual to the public purse.

What happened in August?

The receipts numbers were not entirely reassuring for our big spender.

Central government’s receipts were £76.6 billion, £3.1 billion more than in August 2022 and £1.2 billion more than the £75.4 billion forecast by the OBR. Of this £76.6 billion, tax receipts were £57.6 billion, £2.7 billion more than in August 2022, with income taxes and Value Added Tax (VAT) both increasing by £1.2 billion.

Yes they were higher but we are in an inflationary phase. If you want to be positive you could say they reflect the reflect the recent fading of inflationary pressure. This is repeated by the detail of the income tax figures.

This month, SA receipts were £1.5 billion, £0.8 billion less than in August 2022.

This brings the total SA receipts for July and August 2023 combined to £13.3 billion, £1.7 billion more than in the same two months in 2022 and £0.9 billion more than the £12.4 billion forecast by the OBR. ( SA is Self Assessment )

Expenditure is always going to be under pressure when you have a big spender in town.

In August 2023, central government’s total expenditure was £84.9 billion, £4.3 billion more than in August 2022 and £0.1 billion more than the £84.8 billion forecast by the OBR.

In particular here.

Net social benefits paid by central government in August 2023 were £23.5 billion, £2.7 billion more than in August 2022. In recent months we have seen large increases in benefit payments largely because of inflation-linked benefits uprating and cost-of-living payments.

After noting the numbers from Britain In Numbers yesterday that social benefits have been cut in real terms by 20% via the switch from the RPI to the CPI inflation measure I have to say I feel like giving this bit a free pass. Many of the recipients badly need the money.

Debt Interest

I thought I would pick this area of expenditure out as the times they are a changing. Let me start with the numbers.

In August 2023, the interest payable on central government debt was £5.6 billion, £3.1 billion less than in August 2022, and £2.2 billion below the OBR’s forecast of £7.8 billion. This was the third highest interest payable in any August since monthly records began in April 1997, behind those of August of 2021 and 2022.

So high in historical terms but improving and beneath it two things are going on. In line with the improving inflation statistics we see the impact reducing here.

Of the £5.6 billion interest payable in August 2023, £1.9 billion was mainly attributable to the 0.3% increase in the RPI between May and June 2023, affecting the uplift of the three-month lagged index-linked gilts.

But we are beginning to see the impact of higher conventional UK bond yields. I have pointed out quite a few times before that things have got a lot more expensive but that it also takes time to feed in. An example of this is that the Debt Management Office sold £2.75 billion of a 2053 Gilt on bond on Tuesday for a yield of 4.7%. In itself that is very small change in the debt interest position but we have been doing something similar week after week as the cost of doing so has got more expensive and thus it is becoming more material. Indeed the Bank of England is adding to the pressure by selling some of its holdings ( another £650 million was sold on Monday).

The Financial Year So Far

The big spender theme continues here.

In the financial year to August 2023, central government borrowed £90.5 billion, £36.9 billion more than in the same period a year earlier. A £21.0 billion increase in central government current receipts over this period was exceeded by a £27.5 billion increase in current expenditure.

Although in the year so far debt interest gas fallen as lower (RPI) inflation has been a stronger influence than higher conventional debt costs. In case you were thinking that does not add up you are correct as there is also this.

Central government’s net investment increased by £29.5 billion over the same period, with £24.1 billion being paid to the Bank of England (BoE) under the Asset Purchase Facility (APF) Fund indemnity agreement.

As ever there are plenty of moving parts as comparing with the year before has in this instance the problem that it in borrowing terms has improved considerably.

Since our Public sector finances, UK: March 2023 bulletin published on 25 April 2023, we have reduced our estimate of borrowing for the 12 months to March 2023 (FYE 2023) by £10.8 billion, from £139.2 billion to £128.4 billion.

Aren’t you glad that is clear?

The first rule of OBR Club

At a time of such uncertainty it is nice to have something certain to cling to.

The OBR forecast that FYE 2023 borrowing would settle at £152.4 billion, £24.0 billion more than the current ONS estimate

And

Borrowing in the financial year-to-August 2023 was £11.4 billion lower than the £81.0 billion forecast by the Office for Budget Responsibility (OBR).

For newer readers the first rule of OBR Club is that the OBR is always wrong.

Comment

The essential issue is that there are always reasons for our government to spend more. Yet in the other side of the coin there has been a long-term squeeze applied to those on benefits. But our “big spender” Prime Minister helped create inflation with his spending which now requires more spending. Then there is the issue of the Bank of England applying a subsidy to the pandemic spending which is now proving to be a cost.

As to our debt position that will improve when the GDP revisions are fed in but the true position is between the two numbers below.

Public sector net debt (PSND ex) was £2,594.1 billion at the end of August 2023 and was provisionally estimated at around 98.8% of the UK’s annual gross domestic product (GDP)…….Excluding the Bank of England, public sector net debt was £2,358.7 billion or around 89.8% of GDP, £235.4 billion (or 9.0 percentage points) lower than the wider measure.

That is because I do not think that the Term Funding Scheme should be counted in that way, and it accounts for £167 billion of the difference.