The monthly public sector finances for October published by the Office for National Statistics (ONS) on Thursday 21 November 2024 reported a provisional deficit of £17bn for the month of October, bringing the total for the first seven months of the financial year to £97bn.

Alison Ring OBE FCA CPFA, ICAEW Director of Public Sector and Taxation, says: “Today’s numbers show that taxes and other receipts fell short of public spending by £97bn in the seven months to 31 October, £15bn more than budgeted and £1bn more than in the same period in the previous financial year. This was the third-highest cumulative total for October on record and took net debt to £2,792bn or 97.5% of GDP. This further emphasises the difficult financial situation that the government tried to address in last month’s Autumn Budget.

“The Office for Budget Responsibility’s (OBR) revised estimate for the full year to March 2025 is for a shortfall of £127bn, £40bn more than budgeted, principally from the £22bn black hole in public spending identified by the incoming government and £16bn in extra debt interest.

“With the government’s growth agenda including planning reform and a fresh industrial strategy yet to be rolled out, let alone bear fruit, the Chancellor is almost entirely relying on her Autumn Budget tax rises to stabilise the fiscal situation from April 2025 onwards. This is likely to stiffen her resolve against calls for her to reverse course on some of her tax decisions.”

October 2024 shortfall

The £17.4bn shortfall between receipts and spending for the month of October 2024 was the second-highest October deficit on record since monthly results started to be reported in 1997. This was £8.7bn more than the budgeted deficit of £8.7bn for the month and £1.6bn higher than in October 2023.

Financial year to date

The cumulative shortfall between receipts and spending of £97bn for the seven months to October 2024 was £15bn more than budgeted and £1bn higher than in the same period last year. The ONS reports that this is the third-highest year-to-date deficit for the first seven months of a financial year since 1997.

Cumulative taxes and other receipts amounted to £630bn in the first seven months of 2024/25, up 4% compared with the seven months to October 2023. This is illustrated by Table 1, which highlights how cuts in employee national insurance rates 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 expenditure for the first seven months of £694bn was up by 3% compared with April to October 2023, despite the end of energy support subsidies that inflated last year’s cost base. There was a 4% increase in spending on public services and 4% on welfare spending, partially offset by a 15% reduction in subsidies and 4% lower debt interest.

The fall in debt interest of £3bn compared with the first seven months of last year was driven by a £23bn swing in indexation on inflation-linked debt as inflation slowed, offsetting a £20bn increase in interest on variable and fixed-rate debt. The latter is expected to outpace the former as the year progresses.

The current deficit was £64bn, a 7% 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 £33bn comprised £53bn in capital expenditure (up 8% from the same period last year) and £20bn in capital grants, student loan write-offs and other capital items (up 21%) less £40bn in depreciation (up 5%).

Table 1: Summary receipts and spending

Full-year estimate

The OBR updated its estimate for the current financial year alongside the Autumn Budget 2024, reporting that it now expects the deficit for the full year ended 31 March 2025 to reach £127bn, £40bn more than budgeted. This reflects both the effects of the £22bn ‘black hole’ of unbudgeted expenditure identified by the incoming government and £16bn in additional debt interest than previously projected, in addition to other variances.

Borrowing and debt

Table 2 summarises how the government borrowed £92bn during the first seven months of 2024/25, comprising public sector net borrowing (PSNB) to fund the deficit of £97bn, less £5bn in net inflows from lending activities and working capital requirements.

The consequence was an increase in public sector net debt to £2,792bn on 31 October 2024, £92bn more than the £2,700bn at the start of the financial year and £977bn or 54% more than the £1,815bn reported for 31 March 2020 at the start of the pandemic.

Table 2 also illustrates how public sector net borrowing to fund the deficit was equivalent to 3.5% of GDP in the seven months to October. This was offset by other net inflows of 0.2% of GDP and by 2.4% from the effect of inflation and economic growth on GDP denominator (usually referred to as ‘inflating away’) to result in a 0.9% percentage point increase in public sector net debt from 96.6% to 97.5% of GDP. 

Table 2: Public sector net debt and net debt/GDP

Public sector net liabilities, the basis for the Chancellor’s new fiscal rule for public debt, amounted to £2,394bn on 31 October 2024, comprising illiquid financial assets of £1,071bn less public sector net debt of £2,792bn (£335bn cash and other liquid financial assets – £3,127bn in gross debt) and less £673bn of other financial liabilities not included in debt.

Public sector net worth was -£763bn on 30 September 2024, comprising £2,394bn in public sector net liabilities less £1,631bn in non-financial assets.

These numbers 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 reduce the reported deficit for the first six months of the financial year by £0.3bn (from £79.6bn to £79.3bn) and increase reported net debt on 30 September 2024 by £0.8bn as current and prior year estimates were revised for new data. 

More significantly, the ONS updated the nominal GDP numbers it uses to calculate the public finances in relation to the size of the economy, reducing the ratio of public sector net debt to GDP at the end of September 2024 by 1.4 percentage points from 98.5% to 97.1%. This is in addition to the 1.2 percentage point reduction in the ratio at the end of August 2024 reported last month.

For further information, read the public sector finances release for October 2024.