The monthly public sector finances published by the Office for National Statistics (ONS) on Friday 20 December reported a provisional deficit of £11bn for November, bringing the total for the first eight months of the financial year to £113bn.

Alison Ring OBE FCA CPFA, ICAEW Director of Public Sector and Taxation, says: “Today’s numbers indicate that while net debt of £2,818bn is much higher than the Chancellor would like, she will be pleased that the public finances remain on track with the path set out in her Autumn Budget.

“What will worry government is that recent economic indicators such as weak GDP growth and rising inflation are flashing amber, and what this could mean for tax receipts and the cost of servicing government debt in 2025. Money remains extremely tight and that is unlikely to change any time soon.”

Month of November 2024

The £11.2bn shortfall between receipts and spending for the month of November 2024 was £1.1bn more than originally budgeted, but was £3.4bn less than in the same month last year and the lowest for three years.

Financial year to date

The cumulative shortfall between receipts and spending of £113bn for the eight months to October 2024 was £21bn more than budgeted and £0.4bn lower than in the same period last year. The ONS reports that this is the third-highest year-to-date deficit for the first eight months of a financial year since monthly records began in 1993.

Cumulative taxes and other receipts amounted to £718bn in the first two-thirds of 2024/25, up 3% compared with the eight months to November 2023. This is illustrated by Table 1, which highlights how cuts in employee national insurance rates enacted by the previous government have been offset by higher income tax and corporation tax receipts. The increase in employer national insurance announced in the Autumn Budget 2024 is scheduled for April 2025 and so doesn’t affect the current financial year.

Table 1 also highlights how total current spending for the first eight months of £795bn was up by 2% compared with April to November 2023, despite the end of energy support subsidies that inflated last year’s cost base and a reduction in payments to the EU. There was a 5% increase in spending on public services and 4% on welfare spending, partially offset by 15% reduction in subsidies and 9% lower debt interest.

The fall in debt interest of £8bn compared with the first eight months of last year was driven by a £28bn swing in indexation on inflation-linked debt as inflation slowed, offsetting a £20bn increase in interest on variable and fixed-rate debt.

The current deficit was £77bn, a 6% improvement over the previous year, but it will still be several years before the Chancellor is able to achieve her new fiscal target of a current budget surplus.

Net investment of £36bn comprised £61bn in capital expenditure (up 5% from the same period last year) and £20bn in capital grants, student loan write-offs and other capital items (up 18%) less £45bn in depreciation (up 5%).

Borrowing and debt

Table 2 summarises how the government borrowed £132bn during the first eight months of 2024/25, comprising public sector net borrowing (PSNB) of £113bn to fund the deficit plus other borrowing of £19bn to fund government lending and working capital requirements.

The consequence was an increase in public sector net debt to £2,818bn on 30 November 2024, £132bn or 5% more than the £2,686bn at the start of the financial year and £1,002bn or 55% more than the £1,816bn reported for 31 March 2020 at the start of the pandemic.

Table 2 also illustrates how PSNB was equivalent to 4.0% of GDP in the eight months to November, while other borrowing amounted to 0.1% of GDP. This was offset by 2.1 percentage points from the effect of inflation and economic growth on GDP denominator (usually referred to as ‘inflating away’) to result in a 2.0 percentage point increase in public sector net debt from 96.1% at the start of the financial year to 98.1% of GDP on 30 November 2024. 

Public sector net debt on 30 November 2024 of £2,818bn comprised gross debt of £3,151bn less cash and other liquid financial assets of £333bn.

Adding £697bn of other financial liabilities to and deducting £1,085bn in illiquid financial assets from public sector net debt gives public sector net financial liabilities (PSNFL) of £2,430bn, while further deducting £1,583bn of non-financial assets results in negative public sector net worth (PSNW) of -£847bn.

These numbers for PSNFL and PSNW include public sector-funded pension assets and liabilities (at actuarial rather than accounting values), but exclude the much larger unfunded public sector employee pension obligations and liabilities for nuclear decommissioning, clinical negligence and other provisions for liabilities and charges that are included in the government’s balance sheet under International Financial Reporting Standards (IFRS).

Revisions and other matters

Caution is needed with respect to the numbers published by the ONS, which are expected to be repeatedly revised as estimates are refined and gaps in the underlying data are filled. This includes local government, where the numbers are only updated on a quarterly basis in arrears and in the meantime are based on budget or high-level estimates in the absence of monthly data collection.

The latest release saw the ONS revise the reported deficit for the first seven months of the financial year up by £5bn (from £97bn to £102bn) and increase the reported deficit for the previous financial year to 31 March 2024 by £6bn (from £125bn to £131bn).

The ONS also reduced the reported number for public sector net debt on 31 October 2024 by £8bn from £2,792bn to £2,784bn, and on 31 March 2024 by £14bn from £2,700bn to £2,686bn.

More significantly, the ONS identified a £26bn error in its calculation of the public sector net cash requirement for the seven months to 31 October 2024, increasing it from £27bn to £53bn as a consequence of double counting Term Funding Scheme loan recoveries by the Bank of England.