The monthly public sector finances for September published by the Office for National Statistics (ONS) on Tuesday reported a provisional deficit of £16.6bn for the month of September, bringing the total for the first half of the financial year to £79.6bn.

Alison Ring OBE FCA CPFA, ICAEW Director of Public Sector and Taxation, says: “The data shows that the government spent £80bn more than it took in from taxes and other receipts in the six months to 30 September 2024. This was the third highest on record, £7bn more than budgeted and £1bn more than in the first half of the previous financial year, emphasising the weak state of the public finances ahead of the new Chancellor’s first Budget next week.

“Public sector net debt hit £2,767bn, or 98.5% of GDP, on track to exceed £2.8tn by the end of the financial year, although updated GDP estimates resulted in debt falling back below 100% of GDP. 

“While the Autumn Budget next week is technically about the plan for the next financial year, there will be significant attention on the updated estimates for the current financial year, and the extent to which the new Chancellor has been able to mitigate the £22bn black hole. We hope the Chancellor will use the Budget as an opportunity to fix the underlying debt measure to allow for an increase in the investment the UK needs for growth, as part of a long-term fiscal strategy that puts the public finances on a sustainable footing.”

Month of September 2024

The £16.6bn shortfall between receipts and spending for the month of September 2024 was the third highest on record, £1.5bn worse than the budgeted deficit of £15.1bn and £2.1bn higher than in September 2023.

Taxes and other receipts were £89.3bn, up 4% compared with the same month last year, while total managed expenditure was £105.9bn or 6% higher than in September 2023. 

Financial year to date

The cumulative shortfall between receipts and spending of £79.6bn for the six months to September 2024 was £6.6bn more than anticipated in the Spring Budget and £1.2bn higher than in the first half last year. The ONS reports that this is the third highest year-to-date deficit for the first half of a financial year since 1997.

Cumulative taxes and other receipts amounted to £541.5bn in the first half of 2024/25, up 4% compared with the six months to September 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. 

Total managed expenditure for the first six months of £621.1bn was up by 3% compared with April to September 2023. This reflected a 4% increase in spending on public services, 5% on welfare spending, and 11% on gross investment, partially offset by reductions in energy-support subsidies and lower debt interest.

The fall in debt interest of £3.3bn compared with the first six months of last year was driven by a £22.7bn swing in indexation on inflation-linked debt as inflation slowed, offsetting a £19.4bn increase in interest on variable and fixed-rate debt

Table 1: Summary receipts and spending

Borrowing and debt

Table 2 summarises how the government borrowed £66.9bn during the first six months of 2024/25, comprising public sector net borrowing (PSNB) to fund the deficit of £79.6bn less £12.7bn in loan repayments net of the funding needed for student loans, other lending activities, and working capital requirements.

The consequence was an increase in public sector net debt to £2,766.5bn on 30 September 2024, which is £951.5bn or 52% more than the £1,815bn reported for 31 March 2020 at the start of the pandemic.

Updated GDP estimates and other revisions brought the ratio of net debt to GDP down from the 100.0% reported for August 2024 last month to 98.8% in the latest release, before falling further to 98.5% of GDP on 30 September. This still leaves debt to GDP close to the highest it has been since the 1960s, having increased by 1.4 percentage points from a revised 97.1% on 1 April 2024.

Table 2 also illustrates how borrowing to fund the deficit of 2.9% of GDP less other net inflows of 0.5% of GDP (2.4% in total) are offset by 1.0% from the effect of inflation and economic growth on GDP denominator (usually referred to as ‘inflating away’). Lower inflation this year means this effect is less pronounced than in the same period last year.

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

Public sector net worth, the new balance sheet metric launched by the ONS last year, was -£731bn on 30 September 2024, comprising £1,631bn in non-financial assets and £1,078bn in non-liquid financial assets minus £2,767bn of net debt (£354bn liquid financial assets - £3,121bn public sector gross debt) and other liabilities of £673bn. This is a £65bn deterioration from the start of the financial year and is £128bn more negative than in September 2023.

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 five months of the financial year by £1.1bn (from £64.1bn to £63.0bn) and increase reported net debt on 31 August 2024 by £0.1bn (from £2,768.0bn to £2,768.1bn) as current 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 August 2024 by 1.2 percentage points from 100.0% to 98.8%.

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