The monthly public sector finances for January 2025 published by the Office for National Statistics (ONS) on Friday reported a smaller-than-anticipated provisional surplus of £15bn for the month of January, reducing the cumulative deficit for the first 10 months of the financial year to £118bn.

Alison Ring OBE FCA CPFA, ICAEW Director of Public Sector and Taxation, says: “The expected boost from self assessment tax receipts in January was not enough to bring the public finances under control, which will disappoint the Chancellor as she prepares for her first Spring Forecast.

“The latest numbers do not fundamentally change the weak state of the public finances nor the huge pressures on the Chancellor to increase public spending across the board, especially on defence given the situation in Ukraine. 

“As these numbers will adversely affect the starting point for the Office for Budget Responsibility’s (OBRs) upcoming forecast, it may be more difficult for the Chancellor to keep to her commitment to hold only one fiscal event a year. Further tax rises in March are still unlikely, but their possibility has definitely increased.”

Month of January 2025

The £15bn surplus for the month of January 2025 was £1bn more than the same month a year previously, but £5bn less than the OBR’s latest forecast and £12bn smaller than budget.

The £5bn adverse variance from the latest forecast was primarily because of £4bn in lower-than-anticipated self assessment tax receipts in January.

Financial year to date

The cumulative shortfall between receipts and spending of £118bn for the first 10 months of the financial year was £11bn higher than for the same period last year and £45bn more than budgeted. It was also £13bn more than the OBR’s revised expectation of £105bn for the 10-month period. 

The £13bn adverse variance against the OBR’s latest forecast for the ten months to January 2025 includes the £4bn in lower than anticipated self-assessment tax receipts, a further £2bn relating to the £6bn repurchase of Ministry of Defence housing in December, £4bn in lower than anticipated central government tax receipts (excluding self-assessment), £1bn in higher net investment and £2bn in other differences.

Cumulative taxes and other receipts amounted to £938bn in the first 10 months of 2024/25, up 4% compared with the 10 months to January 2024. 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 appear in the current financial year.

Table 1 also highlights how total current spending of £1,003bn for the first 10 months was up by 3% compared with April 2023 to January 2024, 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 6% on welfare spending, partially offset by a 12% reduction in subsidies and 2% lower debt interest.

The fall in debt interest of £2bn compared with the first 10 months of last year was driven by a £9bn swing in indexation on inflation-linked debt as inflation slowed, offsetting a £7bn increase in interest on variable and fixed-rate debt.

The current deficit is £65bn, a 7% deterioration over the previous year.

Net investment of £53bn comprised £80bn in capital expenditure (up 7% from the same period last year) and £30bn in capital grants, student loan write-offs and other items (up 20%) less £57bn in depreciation (up 6%).

Table 1: Summary receipts and spending

Rest of the financial year

The OBR’s October forecast was for a deficit of £105bn for the first 10 months of 2024/25 followed deficits of £6bn and £16bn in February and March 2025 respectively to reach a forecast deficit of £127bn for the full financial year, £40bn more than the budget set in March 2024. 

With the provisional deficit for the first 10 months of the financial year being £5bn more than budget and £13bn more than the latest forecast, the full-year deficit is on track to exceed £130bn.

Borrowing and debt

Table 2 summarises how the government borrowed £92bn during the first 10 months of 2024/25, comprising public sector net borrowing (PSNB) of £118bn to fund the deficit less £26bn in net cash inflows from other borrowing and working capital movements.

The consequence was an increase in public sector net debt to £2,778bn on 31 January 2024, 3% more than the £2,686bn at the start of the financial year and £962bn or 53% more than the £1,816bn reported for 31 March 2020 at the start of the pandemic.

Table 2 also illustrates how despite borrowing to fund the deficit being equivalent to 4.1% of GDP in the 10 months to January, the net debt to GDP ratio reduced by 0.2 percentage points from 95.5% on 31 March 2024 to 95.3% on 31 January 2025. This was because of cash inflows from working capital movements and other borrowing activities equivalent to 0.9% of GDP and a 3.4 percentage point reduction from the ‘inflating away’ effect of inflation and economic growth increasing GDP, the denominator in the net debt to GDP ratio.

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

Public sector net debt on 31 January 2025 of £2,778bn comprised gross debt of £3,130bn less cash and other liquid financial assets of £352bn. 

Public sector net financial liabilities were £2,412bn, comprising net debt of £2,778bn plus other financial liabilities of £703bn less illiquid financial assets of £1,069bn. Public sector negative net worth was £829bn on 31 December 2024, being net financial liabilities of £2,412bn less non-financial assets of £1,583bn.

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 nine months of the financial year up by £4bn and revise down the reported number for public sector net debt on 31 December 2024 by £3bn to £2,822bn.