The monthly public sector finances for December 2024 published by the Office for National Statistics (ONS) on Wednesday 22 January reported a provisional deficit of £18bn for the month, bringing the total for the first nine months of the financial year to £130bn.

Alison Ring OBE FCA CPFA, ICAEW Director of Public Sector and Taxation, says: “The Chancellor will be disappointed that these numbers are slightly worse than expected, as they reflect that the economy remains fragile amid challenges that include rising unemployment and the high level of national debt.

“The £6bn repurchase of Ministry of Defence housing has pushed up the deficit this month by £2bn, but this will benefit the public finances in the long term. 

“The real test will come next month, when self assessment receipts come in. Depending on how these affect the Office for Budget Responsibility’s (OBR’s) updated projections in the spring forecast, the Chancellor may find it difficult to hold the line on not making any major tax or spending decisions until the Autumn Budget later this year as she attempts to balance the books.”

Month of December 2024

The £18bn shortfall between receipts and spending for the month of December 2024 was £10bn more than the same month a year previously and £9bn more than the budget set in March 2024. 

This was £3bn more than the OBR’s revised expectation of £15bn at the time of the Autumn Budget 2024, partly as a result of an unbudgeted £2bn capital investment arising on the £6bn repurchase of Ministry of Defence housing in December (the balance of £4bn being a repayment of lease liabilities included within public sector net debt).

Financial year to date

The cumulative shortfall between receipts and spending of £130bn for the first three quarters of the financial year was £29bn more than budgeted and £9bn more than in the same period last year. This was £4bn more than the OBR’s revised expectation of £126bn, although £2bn of this variance relates to the repurchase of Ministry of Defence housing.

Cumulative taxes and other receipts amounted to £813bn in the first three quarters of 2024/25, up 3% compared with the nine months to December 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 nine months of £899bn was up by 3% compared with April to December 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 5% on welfare spending, partially offset by 10% reduction in subsidies and 6% lower debt interest.

The fall in debt interest of £6bn compared with the first nine months of last year was driven by a £25bn swing in indexation on inflation-linked debt as inflation slowed, offsetting a £19bn increase in interest on variable and fixed-rate debt.

The current deficit was £86bn, a 1% deterioration over the previous year. The Chancellor is still several years away from being able to achieve her new fiscal target of a current budget surplus.

Net investment of £44bn comprised £70bn in capital expenditure (up 7% from the same period last year) and £25bn in capital grants, student loan write-offs and other items (up 29%) less £51bn in depreciation (up 4%).

Table 1: Summary receipts and spending

Rest of the financial year

The OBR’s October forecast is for a £2bn deficit in the final three months of the financial year, comprising a projected surplus of £20bn in January 2025 (benefiting from self-assessment income tax receipts), a deficit of £6bn in February and a deficit of £16bn in March 2025.

Borrowing and debt

Table 2 summarises how the government borrowed £139bn during the first nine months of 2024/25, comprising public sector net borrowing (PSNB) of £130bn to fund the deficit plus other borrowing of £9bn to fund government lending and working capital requirements.

The consequence was an increase in public sector net debt to £2,825bn on 31 December 2024, 5% more than the £2,686bn at the start of the financial year and £1,009bn or 56% 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 4.6% of GDP in the nine months to December, while other borrowing amounted to 0.3% of GDP. This was offset by a 3.0 percentage point reduction from the effect of inflation and economic growth on GDP denominator (usually referred to as ‘inflating away’) to result in a net 1.9 percentage point increase in net debt/GDP from 95.3% at the start of the financial year to 97.2% of GDP on 31 December 2024. 

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

Public sector net debt on 31 December 2024 of £2,825bn comprised gross debt of £3,143bn less cash and other liquid financial assets of £318bn. 

Public sector net financial liabilities were £2,457bn (being net debt of £2,825bn plus other financial liabilities of £703bn less illiquid financial assets of £1,071bn), while public sector negative net worth was £874bn on 31 December 2024 (being net financial liabilities of £2,457bn 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 eight months of the financial year down by £1bn (from £113bn to £112bn) and increase the reported number for public sector net debt on 30 November 2024 by £1bn from £2,818bn to £2,819bn.

The ONS also revised its estimates for GDP upwards, resulting in a 0.8 percentage point reduction in the ratio of net debt to GDP on 31 March 2024 from 96.1% to 95.3%.