As the UK government seems addicted to borrowing today’s economic growth news is especially welcome

This morning has brought the latest update on the UK public finances and after some more welcome numbers today’s is more nuanced.

Borrowing – the difference between public sector spending and income – was £11.9 billion in March 2024, £4.7 billion less than in March last year.

The lower borrowing from last year is welcome although once we are out of the taxpaying season one might have hoped for monthly borrowing to continue to be below £10 billion.

If we look into the revenue side it looks pretty strong.

Central government’s receipts were £90.6 billion in March 2024, £6.6 billion more than in March 2023. Of this £6.6 billion increase in revenue:

The breakdown is below and overall continues that theme.

central government tax receipts increased by £6.0 billion to £68.1 billion, with increases in Income Tax, Corporation Tax and Value Added Tax (VAT) receipts of £3.1 billion, £1.5 billion and £0.8 billion respectively

compulsory social contributions (largely National Insurance contributions) increased by £0.1 billion to £17.4 billion.

So the revenue figures look pretty strong especially if we allow for the fact that the first cuts in National Insurance ( just under half of the total) will already have been in play.

Switching to expenditure the story starts well.

Central government’s total expenditure was £102.5 billion in March 2024, £0.4 billion less than in March 2023. Of this £0.4 billion decrease in spending:

Especially as the inflation surge is again in play.

net social benefits paid by central government increased by £3.5 billion to £23.7 billion, largely because of inflation-linked benefits uprating.

central government departmental spending on goods and services increased by £2.2 billion to £36.2 billion, as inflation increased running costs.

The real change in this area has essentially been the end of the major energy subsidies.

subsidies paid by central government reduced by £5.5 billion to £2.4 billion, largely because of the cost of the Energy Price Guarantee (for households), as explained on GOV.UK, and the Energy Bill Relief Scheme (for businesses), as explained in GOV.UK guidance, affecting this month the previous year.

In fact this concept pops up elsewhere in the figures too.

payments recorded under central government “other current grants” reduced by £2.4 billion to £1.6 billion, largely because of the cost of the previous year’s Energy Bills Support Scheme, as explained on GOV.UK, when six relief payments were made directly to households monthly between October 2022 and March 2023, affecting this month the previous year.

Debt Interest 

This area has been of more interest after the impact of inflation on it. But there is also something curious about this month’s release. It starts with a pretty standard statement.

interest payable on central government debt increased by £0.4 billion to £2.5 billion, largely because the interest payable on index-linked gilts rises and falls with the Retail Prices Index.

But this is the issue I have because if it was index-linked gilts how does that work when inflation is falling? Elsewhere the release admits that.

Capital uplift was negative in March 2024, with a reduction of £1.6 billion reflecting the 0.3% decrease in the RPI between December 2023 and January 2024..

They then refer you to a table which says the number was -£9.6 billion!

A monthly time series of the total capital uplift on the index-linked gilts in issue is available as series identifier code MW7L.

So these numbers look very confused to me. What attracted my attention was the claim that inflation linked payments were higher which are not consistent with what we know RPI inflation has done and indeed they later state that. Looking through the series it may well be that it was March 2023 that had the wrong number as the other interest component which otherwise has been consistently above £4 billion was only £1.8 billion which rather stands out.

The Year 2023/24 as a whole

We can move on from the monthly numbers to take a look at the more important annual comparison, where the monthly swings and revisions are not quite so important.

Our first estimate for the total borrowed in the financial-year-ending (FYE) March 2024 is £120.7 billion. This reflects the £11.9 billion borrowed in March 2024, as well as an upward revision of £1.9 billion to our previously published financial year-to-February 2024 borrowing estimate.

The first impression here is that it is a lot of money to borrow even in these inflated times. Plus there are still revisions which I can highlight via what we were told at this time last year.

The £21.5 billion borrowed in March 2023 combined with a reduction of £14.6 billion to our previously published financial year-to-February borrowing estimate brings the total borrowed in the financial year ending (FYE) 2023 to £139.2 billion.

So relative to what we thought at the time we are around £20 billion better off. But whilst this time around the revision was unfavourable overall the have been pretty favourable.

£7.6 billion less than in the same twelve-month period a year ago

Awkward isn’t it when we have so many moving parts?! You may note that the March borrowing last year was a lot higher than we think now. We can put the annual figures in another form as we thought back then we had borrowed 5.5% of GDP in the fiscal year whereas this time around we think this.

Compared with the annual value of the UK’s economy, borrowing in the FYE March 2024 was provisionally estimated at 4.4% of the UK’s gross domestic product (GDP), 0.6 percentage points less than in the same twelve-month period a year ago.

So now we are comparing with 5%.

Oh and politicians like to concentrate on the current budget deficit. Can anybody think why?

In FYE March 2024, the public sector current budget deficit was £51.1 billion, £31.2 billion less than in FYE March 2023.

Compared with the annual value of the UK’s economy, borrowing in the FYE March 2024 was provisionally estimated at 1.9% of the UK’s gross domestic product (GDP), 1.3 percentage points less than in FYE March 2023.

National Debt

You can take these numbers with and without the Bank of England.

Public sector net debt excluding public sector banks (debt) at the end of March 2024 was provisionally estimated at 98.3% of GDP; this was 2.6 percentage points more than at the end of March 2023, and remains at levels last seen in the early 1960s.

Excluding the Bank of England, debt was 89.4% of GDP, 8.9 percentage points lower than the wider debt measure.

I have never thought that the Term Funding Scheme should be included and allowing for that our debt to GDP ratio is 93%.

Comment

As I have already explained the March numbers were a little disappointing as we had been in an improving trend. Although in comparison to where we thought we were this time last year they are rather good. I am afraid it is often like that when analysing the public finances when due to revisions there is much less certainty than many would have you believe. Indeed as I explained in my analysis of debt interest last March seems to have the wrong numbers as the other category was initially reported as £3.6 billion not the £1.8 billion in today’s release.

If we step back for some perspective we seem to have become rather addicted to public borrowing. Thus we badly need some economic growth so let us hope that this morning’s S&P Global PMI release is right about this.

Early PMI survey data for April indicate that the UK
economy’s recovery from recession last year continued to
gain momentum. Improved growth in the service sector
offset a renewed downturn in manufacturing to propel
overall business growth to the fastest for nearly a year,
indicating that GDP is rising at a quarterly rate of 0.4%
after a 0.3% gain in the first quarter.

That is a positive theme for St. George’s Day and let me wish you all a happy one.

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