This morning has brought news of some winds of change for the UK Public Finances numbers. We had been rather stuck in double-digit borrowing each month in spite of the fact that the energy support programmes of last year had gone. But as you can see December was rather different.
Public sector net borrowing excluding public sector banks (borrowing) in December 2023 was £7.8 billion, around half or £8.4 billion less than that borrowed in December 2022 and the lowest December borrowing since 2019.
Looking at the numbers this was essentially a central government thing, which I guess is no great surprise if we note the financial mess that some local authorities are in.
The relationship between central government’s receipts and expenditure is the main determinant of public sector borrowing. Central government borrowed £4.6 billion in December 2023, £10.1 billion less than in December 2022 and £6.7 billion less than the £11.3 billion forecast by the Office for Budget Responsibility (OBR).
As you can see one of the certainties of life remains in that the first rule of OBR Club that the OBR is always wrong had had another success. We however,by contrast, have been on the ball as we have been expecting an improvement caused by lower inflation impacting on index-linked debt.
In December 2023, the interest payable on central government debt was £4.0 billion, £14.1 billion less than in December 2022. This was the lowest December interest payable since 2020 and £5.5 billion less than the £9.5 billion forecast by the OBR.
If we look further into this we see quite a change.
Capital uplift in December 2023 was negative £0.1 billion reflecting the 0.2% decrease in the RPI between September and October 2023. This reduced the capital uplift on the three-month lagged index-linked gilts, which make up around three-quarters of the index-linked gilt stock.
In December last year the Capital uplift was £13.7 billion so in essence the fall in inflation really improved the borrowing figures for December. Care is needed in projecting this forwards because December and June are the two big months for debt interest. So whilst the number for January should also be better it relates to a Capital uplift of a much lower £3.3 billion.
Over time UK borrowing may be trimmed compared to projections due to our bond yields falling back as the ten-year is below 4% as opposed to the 4.75% of last autumn, but that is a fair way ahead.
Whilst the overall change pretty much was the debt interest move there were other factors which tended to offset. I have already noted the end of the energy support schemes.
Subsidies paid by central government were £2.4 billion in December 2023, £4.2 billion less than in December 2022.
But they were offset by a different more lagged inflation impact.
Net social benefits paid by central government were £23.7 billion in December 2023, £2.7 billion more than in December 2022. In recent months we have seen large increases in benefit payments largely because of inflation-linked benefits uprating and cost-of-living payments.
The tax numbers maybe hint at a little growth which is a different message from the retail sales fall on Friday.
Central government’s receipts were £81.5 billion in December 2023, £4.8 billion more than in December 2022.
The breakdown is below.
Of this £81.5 billion, tax receipts were £61.1 billion, £3.5 billion more than in December 2022, with Income Tax receipts and Value Added Tax (VAT) receipts increasing by £1.3 billion and £1.2 billion, respectively.
For those wondering about why taxes are so much below the total here it is because of semantics. National Insurance which is really another form of Income Tax comes under Social Contributions which were £15.3 billion in December. This comes from the way the state has over time tried to imply they pay for pensions which in fact they do so no more or less than other taxes.
Revisions Boost
The numbers also showed that last year was a fair bit better than we thought at the time.
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 (financial year ending (FYE) 2023) by £9.1 billion, from £139.2 billion to £130.1 billion.
That raises a wry smile because back in the day I recall working in the City of London when markets responded actively to the borrowing figures, which as you can see may be revised quite a bit. So the last financial year ended up like this.
Current estimates show that for the 12 months to March 2023, the proportion remains broadly around that of FYE 2015, having reduced by only a further 0.2 percentage points to 5.1%.
There was more welcome news in the release as we have been borrowing less this year as well.
Since publishing our Public sector finances, UK: November 2023 bulletin, we have reduced our estimate of borrowing in the financial year-to-November 2023 by £5.0 billion. This change was the result of new central government data replacing previous estimates.
This may suggest the economy has done a bit better than we were previously thinking.
Regular updates to tax and National Insurance contributions increased receipts by a total of £4.2 billion, with updated data replacing our initial estimates.
Newer readers my be surprised that the tax numbers are not more definite.The Information Technology era feels like it has bypassed this area. But it is a reminder that the numbers have quite a wide margin for error.
Bank of England
This has been in play in this financial year due to this.
The borrowing of both of these sub-sectors is affected by payments totalling £33.2 billion made by central government to the BoE over the last nine months under the Asset Purchase Facility Fund (APF) indemnity agreement.
Regular readers will be aware that I feel that the media has given the Bank of England a free pass over buying the UK Gilt market at the top and now selling at the bottom. However for today’s purposes it then does something of a magic trick.
As with similar intra-public sector transactions, these payments are public sector borrowing neutral.
Comment
Today’s public finances numbers show a more hopeful position for the UK public finances. As I have already pointed out it was on the cards due to the impact of lower inflation on our relatively higher proportion of debt index-linked to inflation. Those of a more cynical nature might be wondering about better figures when this is being mooted.
A halving of UK government borrowing over the past year has created scope for Jeremy Hunt to make tax cuts worth about £20bn in his March budget. ( The Guardian)
Actually that is classic Guardian as borrowing has not halved over the past year it halved in December only. But the issue of tax cuts feels like a song from Phil Collins.
I can feel it coming in the air tonight, oh lordAnd I’ve been waiting for this moment, for all my life, oh lordCan you feel it coming in the air tonight, oh lord, oh lord
But the idea that there is a sort of conspiracy in play hits trouble as we see that the civil service in HM Treasury is very much against it.
— Internal Treasury analysis advised Rishi Sunak that tax cuts would have only a “low impact” on boosting economic growth ( @AlexWickham)
That reminds me of the Yes Prime Minister series being re-run on BBC4 as the last episode I watched described HM Treasury as being against tax cuts in the 1980s because they considered it “their money” and a source of power It seems not much has changed.
Meanwhile this but is mind boggling. Surely if immigration boosts economic growth then the UK economy should be sprinting along rather than stumbling?
Leaked documents show the Treasury suggested increasing immigration and planning reform would do more ( @AlexWickham )
Notayesmanseconomics's Blog 
“Leaked documents show the Treasury suggested increasing immigration and planning reform would do more ( @AlexWickham )”
If immigration boosted economic activity, the UK would be the richest country in the world. As I have pointed out before, if a million immigrants are entering per year – where are they going to live and how can our economy generate a million jobs per year? Many of them are coming on “student visas” but are allowed to bring their families with them, why would someone going to study in a foreign country do that?
Students, with the exception of those from extremely rich families (Chinese mostly) are not rich and have to pay more for their degree than British students, so are we to believe they are paying for their degree, accommodation and supporting their family as well???Somehow I don’t think so and there is a massive loophole being used here.
Also, why is the gilt market happy for Hunt to borrow money to buy votes – sorry – boost growth, when Truss and Kwarteng did it, it caused the gilt market to crash???
Since a little over 1/2 million emigrate each year FROM UK, then, in the three years since Brexit, THREE & A HALF MILLION PEOPLE HAVE COME HERE!!!!!!
Bearing in mind that the WEF reckons 40% of jobs will go due to AI, JUST HOW MANY FRUIT-PICKERS DO WE NEED????
Hi Kevin
I’ve also wondered about how the endless foreign students can afford their degrees. The answer is they don’t:
https://www.theguardian.com/education/2024/jan/18/organised-may-be-profiting-from-student-loan-worth-60m-report
Once again the OCG’s running rings around the uk taxpayer. And the universities dont seem to mind as they get paid per student.
Also fake universities:
https://www.theguardian.com/education/2021/feb/18/uk-degree-85-fake-university-websites-taken-down-in-five-years
Hi Anteos
It is amazing that no-one seems to do even basic checks on these. As to Student Loans the numbers just keep rising.
“The cost of student loans is increasing quickly. The value of outstanding loans at the end of March 2021 reached £161 billion and it is forecast to rise to half a trillion pounds by 2043.” ( UK Govt)
One of my friends was pleased to have recently paid off hers. It must feel like a ball and chain at times.
IF you thought my recent comments regarding the way we in the west are going towards being controlled by an authoritarian communist controlled regime, just watch the video below, Brendan Kavanagh who regularly plays piano in St Pancras station was harassed and threatened by Chinese members of a state TV crew when he refused to stop filming them as part of his performance, the police arrived and just watch the intimidating, threatening attitude of the policewoman, if he hadn’t been filming it(why is it OK for police to wear bodycams to record us, but we can’t film them in the execution of their job?) or it involved those who practice “the religion of peace” I think he would be already on his way to clink. All he said was “Chinese communist”, but as she kept repeating ,he wasn’t allowed to say things like that and it is racist apparently – so why can’t he say those things????
The magic word “racist” was used which is a green light for the police to progress the incident to an arrest as the legal system now only has to establish the “victim” has been offended or felt threatened for the perp to be guilty -except when the threat is to kill Israelis or infidels by those for whom the law does not apply.
Watch it before it is taken down.
Check out the woman saying “don’t shoot him” repeatedly at 5:41, so did he have a gun on him?
On the question of are immigrants an economic benefit to the country watch this. Appparently 54.2% of the population – 36 million people are receiving more in benefits than they pay in taxes, and immigrants who are put up in 3 bed flats in the Portobello Rd only have to pay £151 per week(the real rent is in the region of £860pw) and here’s the best bit – they can sub-let the spare rooms AND KEEP ALL THE MONEY!!!!!
Hi Kevin
The simplest response to the HM Treasury claim about immigration is why is our economy not doing much better after the high numbers we have seen recently. It is not much good them claiming they need to be skilled immigrants as that is what we were frequently told the previous ones were.
The reference on the revisions that corp tax is 5B higher than forecast last month is presumably a good indicator of company profitability and thus wellbeing. Im guessing many have benefited from increased selling prices due to inflation.
To suggest there is any surplus when we are already borrowing well over a 100Billion is mischievous reporting but it wont stop them as they will want to back Labour into a corner as they will raise your taxes.
“Im guessing many have benefited from increased selling prices due to inflation.”
Do you mean opportunistic thieving b,,,,,,,,,,s?
Hello Shaun,
So the treasury wanted more people? I do wonder after 6 decades and 24 million plus “new British” why our leaders are still obsessed with such a strategy when it seems not to resolve any of the issues they say it should. Indeed such increases in population are requiring more and more resources to support , not just benefits but infrastructure such as schools , hospitals and water supplies to name a few.
I do not pass any moral judgement on who we re-settle but look at this issue from an engineering and financial view point, these things need planing and provisioning which appears to be totally lacking.
GDP may well improve but GNP is already declining and HMG will not be able to reach climate and environmental goals they set themselves( don’t worry Forbin, moving goal posts is easier ! ahah ahah ) .
Am I missing something or is this all down to following the money ?
Forbin
Forbin, the only thing you are missing is that we are being deliberately and systematically replaced and are voting for it and paying for and also being reduced to second class citizens below the rights of those who are being imported, this under the Geneva convention is actually classed as genocide – look it up
He doesn’t like Carney either:
Hi therrawbuzzin
That makes three of us….
o/t but another sign of the almost hyperinflation of the US economy by the inflation fighting Fed, during which they see fit to reduce interest rates, how much do you think a BLT costs today??? Hint: Morrisons are charging £2.85.
$3? £2.36?
$5? £3.93?
$8? £6.30?
$10? £7.87?
$12? £9.45?
$14? £11.02?
$16? £12.60?
Hi Kevin
There are some frightening numbers in his video. That is a lot of sandwiches he has to sell to make a crust. Fair play to him for spelling it out as well.
Thumbs up solely for the worst pun of the week!
The problem with this is that there is no actual inflation.
Inflation is when money supply expands quicker than the economy grows.
Money supply is in contraction, and the economy is contracting too.
What we have is deflation masked by synthetic “inflation” – actually just artificial-scarcity-driven price rises that are the result of malign, misguided or incompetent political policy decisions, such as lockdowns, netzero, sanctions, aid to corrupt-fascist-Ukrainian-regime, and the government illegally facilitating illegal immigration on a massive scale.
Excessive debt has driven capital out of the bond markets into cash in anticipation of recession bargains, and that drives up interest rates, some temporary retreat back into the bond market tempers that and creates a disinflation false dawn for a couple of years.
Make no mistake, China and it’s global deflationary impact is out of the picture now due to demographics as well as a spent export-orientated economic policy, where new credit only fueled the property bubble, not growth in export industries, and that souffle is now collapsing.
The false dawn dip in synthetic inflation may last until 2026, but in the long run, it’s going to be more price rises and accelerating price rises again for the second half of the 2020s decade and into the 2030s.
I pity the poor younger generation in the UK and other wokefascist-socialism-debilitated western economies, the growth is more likely elsewhere, such as South and SEAsia, where they are starting from a relatively low base, with room to rise.
As for the UK, and other developed nations with large public sectors, the choice is stark – cuts in the public sector and welfare parts of the budget, or real-terms wage decreases. In the end, the economy needs people to spend in order to thrive, so with taxes maxxed out, and disposible income blighted by personal debt (e.g.: credit cards and paylater and toxic mortgages), the path of least resistence is cuts in the public sector budget.