The monthly public sector finance release for February 2025 published by the Office for National Statistics (ONS) on Friday reported a deficit of £11bn for the month, increasing the cumulative deficit for the first 11 months of the financial year to £132bn.

Alison Ring OBE FCA CPFA, ICAEW Director of Public Sector and Taxation, says: “The Chancellor will be disappointed that late self assessment tax receipts were not sufficient to offset overruns in public spending ahead of the Spring Statement. 

“Although today’s data is too late to be reflected in the OBR forecast the Chancellor will present to Parliament next Wednesday, it will still influence her thinking about whether to cut the amount of public spending allocated to this summer’s three-year Spending Review. 

“Any potential improvement to the public finances caused by the proposed cuts to welfare are a long way off so the key question is whether the Chancellor can avoid major decisions on further tax rises ahead of the Autumn Budget later this year, or if pressures from today’s numbers will force her hand.”

Month of February 2025

The £10.7bn deficit for February was £0.1bn more than the same month a year previously, £4.2bn more than the Office for Budget Responsibility (OBR)’s estimate from the time of the Autumn Budget, and £10.1bn more than the budget set in March last year.

Financial year to date

The cumulative shortfall between receipts and spending of £132bn for the first 11 months of the financial year was £15bn higher than for the same period last year, £20bn more than was estimated by the OBR at the time of the Autumn Budget, and £58bn more than was originally budgeted last March. 

The ONS reports that this is the third highest deficit for the first 11 months of the financial year since monthly records began in 1993, exceeded only by the pandemic in 2020/21 and the financial crisis in 2009/10.

The £20bn adverse variance against the OBR’s October estimate for the first 11 months of the financial year reflects £4bn in lower-than-anticipated self assessment tax receipts, a further £2bn relating to the £6bn repurchase of Ministry of Defence housing in December, £7bn in lower than anticipated central government receipts (excluding self assessment), and £7bn in higher public spending and other items.

Cumulative taxes and other receipts between April 2024 and February 2025 amounted to £1,034bn, up 4% compared with the first eleven months of 2023/24. 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 £1,105bn for the first 11 months of 2024/25 was up by 4% compared with April 2023 to February 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 an 8% reduction in subsidies and 3% in lower debt interest.

The fall in debt interest of £3bn compared with the first 11 months of last year was driven by a £10bn swing in indexation on inflation-linked debt as inflation slowed, offsetting a £7bn increase in the interest payable on variable and fixed-rate debt.

The current deficit for the 11 months to February 2025 was £71bn, an 8% deterioration over the previous year.

Net investment of £61bn comprised £92bn in capital expenditure (up 8% from the same period last year) and £32bn in capital grants, student loan write-offs and other items (up 23%) less £63bn in depreciation (up 5%).

Table 1: Summary receipts and spending

Rest of the financial year

The OBR's October forecast was for a monthly deficit of £15bn in March 2025, which if achieved, and subject to revisions to these provisional numbers, would imply a financial deficit for the full year of somewhere in the region of £145bn to £150bn.

Borrowing and debt

Table 2 summarises how the government borrowed £110bn during the first 11 months of 2024/25, comprising public sector net borrowing (PSNB) of £132bn to fund the deficit less £22bn in net cash inflows relating to government lending and working capital movements.

The consequence was an increase in public sector net debt to £2,796bn on 28 February 2025, 4% more than the £2,686bn at the start of the financial year, and £980bn or 54% more than the £1,816bn on 31 March 2020 at the start of the pandemic.

Table 2 also illustrates how despite borrowing to fund the deficit being equivalent to 4.6% of GDP for the period from April 2024 to February 2025, the net debt to GDP ratio was unchanged from the start of the financial year at 95.5% of GDP. This was because of cash inflows from working capital movements and other borrowing activities equivalent to 0.8% of GDP and a 3.8 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 28 February 2025 of £2,796bn comprised gross debt of £3,183bn less cash and other liquid financial assets of £387bn. 

Public sector net financial liabilities were £2,428bn, comprising net debt of £2,796bn plus other financial liabilities of £707bn less illiquid financial assets of £1,075bn. 

Public sector negative net worth was £827bn on 31 December 2024, being net financial liabilities of £2,428bn less non-financial assets of £1,601bn.

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 10 months of the financial year and reported net debt at the end of January 2025 up by £3bn each, from £118bn to £121bn and from £2,778bn to £2,781bn respectively.