Public Sector Finances, UK: January 2021 - Highest Ever Borrowing Since Records Began

19th February 2021

Public sector net borrowing (excluding public sector banks, PSNB ex) is estimated to have been £8.8 billion in January 2021, £18.4 billion more than in January 2020, which is both the highest January borrowing since monthly records began in 1993 and the first January deficit for 10 years.

Central government tax receipts are estimated to have been £63.2 billion in January 2021 (on a national accounts basis), £0.8 billion lower than in January 2020, with notable falls in taxes on production such as Value Added Tax (VAT) and Business Rates.

Self-assessed Income Tax receipts were £16.8 billion in January 2021, £1.4 billion more than in January 2020; in the light of the government's tax deferral policy, it is advisable to look at combined self-assessed Income Tax receipts across the whole financial year when drawing conclusions from year-on-year comparisons.

Central government bodies are estimated to have spent £81.9 billion on day-to-day activities (current expenditure) in January 2021, £19.7 billion more than in January 2020; this includes £5.1 billion expenditure on coronavirus job support schemes.

Public sector net borrowing (excluding public sector banks, PSNB ex) in the first 10 months of this financial year (April 2020 to January 2021) is estimated to have been £270.6 billion, £222.0 billion more than in the same period last year and the highest public sector borrowing in any April to January period since records began in 1993.

Public sector net debt (excluding public sector banks, PSND ex) rose by £316.4 billion over the first 10 months of this financial year to reach £2,114.6 billion at the end of January 2021, or around 97.9% of gross domestic product (GDP); maintaining a level not seen since the early sixties

Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) was a surplus of £10.8 billion in January 2021, bringing the current financial year-to-January total to £307.4 billion, nearly double the highest cash requirement in any other April to January period since records began in 1984.

General government net borrowing in the first 10 months of this financial year is estimated to have been around 12.6% of GDP, while general government gross debt stood at around 100.6% of GDP at the end of January 2021; statistics for the general government sector are used for international comparisons and include central and local government only.

The impact of the coronavirus on the public finances -

The coronavirus (COVID-19) pandemic has had a substantial impact on the economy and subsequently on public sector borrowing and debt.

Central government tax and National Insurance receipts (combined) in the 10 months-to-January 2021 fell by £38.9 billion (or 6.7%) compared with the same period a year earlier, while government support for individuals and businesses during the pandemic contributed to an increase of £182.8 billion (or 29.8%) in central government day-to-day (or current) spending.

The latest official forecasts, published by the Office for Budget Responsibility (OBR) on 25 November 2020, indicate that the £270.6 billion borrowed by the public sector in the financial year-to-January 2021 could reach £393.5 billion by the end of March 2021.

It should be noted that the OBR borrowing forecast for the financial year ending March 2021 (April 2020 to March 2021) includes an estimated £29.5 billion in write-offs of the business loans under the government's COVID-19 schemes whereas Office for National Statistics (ONS) outturn data does not yet include any estimates for these write-offs.

The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s. Public sector net debt (excluding public sector banks) at the end of January 2021 was equivalent to 97.9% of GDP.

Borrowing in January 2021

In January 2021, the public sector spent more money than it received in taxes and other income, requiring it to borrow £8.8 billion, £18.4 billion more than it borrowed in January 2020.

Each January, accrued receipts tend to be higher than in other months owing to receipts from self-assessed taxes, often leading to a public sector net surplus.

Though self-assessed Income Tax receipts this month were £16.8 billion, £1.4 billion higher than in January last year, the substantial increase in government spending during the current pandemic combined with an overall reduction in revenue has meant that this month was the first January deficit since 2011.

Self-assessed Income Tax receipts

Each January (and July), accrued receipts tend to be higher than in other months owing to receipts from self-assessed taxes.

This month self-assessed Income Tax receipts were £16.8 billion, £1.4 billion more than in January 2020. Some of this growth was likely because of the government's deferral policy, giving an option for individuals to defer their July self-assessment payment to January 2021 because of the coronavirus pandemic, without incurring late payment charges.

Given that late payments of self-assessed Income Tax due in January will be recorded in February, it is usually better to look at receipts in January and February combined when making annual comparisons. However, in light of the government’s deferral policy and the government’s payment plan facility to help those who expect to have difficulty in meeting their January 2021 obligations, this year it is advisable to look at the combined self-assessed Income Tax receipts across the whole financial year when drawing conclusions from year-on-year comparisons.

Currently, in the financial year-to-January 2021, self-assessed Income Tax receipts were £26.3 billion, £2.0 billion less than in the same period a year earlier.

Capital Gains Tax

Self-assessed Capital Gains Tax obligations are due to be paid each January. This month Capital Gains Tax receipts were £7.1 billion, £0.1 billion more than in January 2020.

Like self-assessed Income Tax, as some late payments due in January will be recorded in February (and to a much lesser extent March), it is usually better to look at receipts in these months combined when making annual comparisons.

Read more details at

https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/january2021