The monthly public sector finances for August 2024 released by the Office for National Statistics (ONS) on Friday 20 September 2024 reported a provisional deficit for the first five months of the 2024/25 financial year of £64.1bn, £6.2bn worse than budgeted.

Alison Ring OBE FCA, ICAEW Director of Public Sector and Taxation, said: “The public finance numbers for August, released today, were worse than expected, with the reported deficit for the month of £13.7bn higher than predicted, while net debt increased to 100.0% of GDP, at £2,768bn.

“Although disappointing, Chancellor Rachel Reeves will be relieved that the cumulative deficit for the year to date is not as bad as it could have been, as she faces a series of tough choices in advance of the Autumn Budget next month.

“While the Chancellor’s primary focus will be on bringing public spending under control in the short term, we hope she will also be thinking about how best to lay the ground for economic growth. Reform of business rates, VAT and employment status within the tax system needs to be high up the agenda as part of a wider tax roadmap for businesses to stimulate economic growth and boost investment, while at the same time she needs to set out a fiscal strategy to put the public finances onto a sustainable footing over the long term.”

Month of August 2024

There was a shortfall between receipts and spending of £13.7bn in the month of August 2024, £3.3bn higher than in August 2023 and £2.5bn worse than the budgeted deficit of £11.2bn.

Taxes and other receipts amounted to £89.4bn in the month, up £3.7bn or 4% compared with the same month last year, while total managed expenditure of £103.1bn was £7.0bn or 7% higher than in August 2023. 

Financial year to date

The cumulative shortfall between receipts and spending of £64.1bn for the five months to August 2024 was £0.3bn higher than in the same period last year and £6.2bn more than budgeted. 

The ONS reports that this is the third highest year-to-date deficit for August on record, despite the budgeted deficit for the full year of £87bn being the twelfth highest if it were to be achieved.

Cumulative taxes and other receipts amounted to £452.4bn in the first five months of the financial year, up 3% compared with the same period last year. 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 five months of £516.5bn was also up by 3% compared with April to August 2023. This resulted from a 5% increase in spending on public services, 8% on welfare spending and 13% on gross investment being offset by reductions in energy-support subsidies and lower debt interest.

The fall in debt interest of £7.8bn compared with the first five months of last year was driven by a £26.4bn swing in indexation on inflation-linked debt that more than offset an £18.6bn 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 £68.4bn during the first five months of 2024/25, comprising public sector net borrowing (PSNB) to fund the deficit of £64.1bn and other borrowing of £4.3bn to fund student loans, other lending activities, and working capital requirements.

This saw public sector net debt increase to £2,768bn on 31 August 2024, which is £953bn or 53% more than the £1,815bn reported for 31 March 2020 at the start of the pandemic.

The ratio of net debt to GDP ratio is at the highest it has been since the 1960s, having increased by 1.7 percentage points from 98.3% on 1 April 2024 to 100.0% on 31 August 2024. However, the GDP numbers used in this equation are currently based on the OBR’s March 2024 Spring Budget forecasts. This is expected to change next month, with GDP expected to be revised upwards for more recent economic data, with the debt/GDP ratio being revised downwards as a consequence.

Table 2 also illustrates how borrowing to fund the deficit of 2.3% of GDP and other borrowing equivalent to 0.2% of GDP (2.5% in total) are offset by 0.8% from the effect of inflation and economic growth on GDP (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 -£728bn on 31 August 2024, comprising £1,631bn in non-financial assets and £1,083bn in non-liquid financial assets minus £2,768bn of net debt (£351bn liquid financial assets - £3,119bn public sector gross debt) and other liabilities of £674bn. This is a £62bn deterioration from the start of the financial year and is £120bn more negative than in August 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 retrospectively 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 four months of the financial year by £1.1bn (from £51.4bn to £50.3bn) and reported net debt on 31 July 2024 by £1.5bn (from £2,745.9bn to £2,744.4bn) as current year estimates were revised for new data. 

The ONS have also revised the reported numbers back to 1997/98 for a methodology change relating to debt interest calculations and back to 2018/19 for updated data. The latter includes changes from HMRC on PAYE tax receipts, updates on student loan numbers and changes in Bank of England balances. These revisions resulted in an increase in the reported deficit for 2023/24 of £1.4bn (from £120.3bn to £121.7bn) and reductions of £5.5bn for 2022/23 (from £128.5bn to £123.0bn) and £3.5bn for 2021/22 (from £126.3bn to £122.8bn), as well as a cumulative reduction of £10.5bn to the preceding 24 years, or £0.4bn a year on average.

However, there was no change to reported public sector net debt for 31 March 2022 or prior years, and a relatively small upward revision of £0.7bn for 31 March 2023 (from £2,539.7bn to £2,540.4bn). The upward revision to reported net debt on 31 March 2024 was more significant at £5.5bn (from £2,694.1bn to £2,699.6bn).

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