A major part of the economic story of 2022 has been the energy crisis. In fact the decisions causing it were made years and in some cases decades before it, so it has been a crash that arrived in slow motion. It has driven up the cost of living both explicitly via higher domestic and industrial energy bills and also implicitly via producers costs being higher leading to higher prices. This morning we saw it impact on the UK Public Finances as I note that they were the driver of this headline.
In November 2022, the public sector spent more than it received in taxes and other income, requiring it to borrow (public sector net borrowing excluding public sector banks (PSNB ex)) £22.0 billion, which was £13.9 billion more than in November 2021, and the highest November borrowing since monthly records began in 1993.
I do wish the Office for National Statistics would not imply that records began in 1993 when they mean in the present form. But there has been quite a surge and it comes from the official response to the crisis created by the same people who have been in government. They saw that energy prices were in fact unaffordable both for domestic consumers and for businesses. So here is what they did from the viewpoint of the public finances.
Central government bodies spent £82.0 billion on current (or day-to-day) expenditure in November 2022, which was £13.5 billion more than in November 2021.
So essentially this month’s issue is higher expenditure as the difference between it and the deficit increase is a mere £400 million.
Energy Bills Support and Subsidies
The £400 the government is putting towards energy bills is being paid in six installments and below is one of them.
It is paid in six evenly spread portions between October 2022 and March 2023. This month sees the second round of EBSS payments, as shown on GOV.UK, with £1.9 billion of central government expenditure recorded as a current transfer from government to households, and presented within the “other expenditure” category in Tables 3 and 7.
In ordinary times a payment of £1.9 billion per month would seem a lot but we have a fair bit more to account for. We find a lot of it here.
In September 2022, the UK Government announced further plans to help households and businesses manage the cost of energy. These include the Energy Price Guarantee (EPG) for households and the Energy Bill Relief Scheme (EBRS) for businesses across the UK.
Although the ONS is a little vague about the numbers.
This month sees the second round of payments under the scheme for households and businesses, with the associated central government expenditure recorded within the “subsidies – other” category in Tables 3 and 7. This month’s figure is an initial indicative estimate, which will be revised over the coming months.
As it is a second payment you might reasonably think that the estimates should now be refined. Anyway the categories concerned bring us another £4.7 billion.
Indirect Energy Costs
There are two basic categories here and the first is a combination of direct and indirect energy costs.
In November 2022, assistance payments were £13.2 billion, £3.3 billion more than in November 2021. This increase was largely because of an increase in cost-of-living payments.
The main driver of the higher cost-of-living has been energy. Sadly for those receiving these payments their energy bills are likely in many cases to have been unaffordable. They must have been freezing in the recent cold snap. Even if we look at other areas such as food costs one of the drivers has been energy bills via for example the rising price of fertiliser.
Next up is a very familiar issue and again much of it has been driven by energy costs which have raised the rate of inflation both directly and indirectly.
Instead, the recent high levels of debt interest payable are largely a result of higher inflation, with the interest payable on index-linked gilts rising in line with the Retail Prices Index (RPI).
As that rose at an annual rate of 12.6% in the year to September we can see why the numbers below have been motoring higher. I am looking at the September inflation figures because inflation has a 3 month lag before it is applied to the majority of UK index-linked gilts or bonds.
In November 2022, the interest payable on central government debt was £7.3 billion with an underlying £4.3 billion reflecting the impact of inflation.
Receipts
We have in fact over explained the rise in the deficit and there were other factors raising expenditure such as pay rising by £600 million. In future that will be a bigger issue as one way or another there will be higher public-sector pay and right now the issue is symbolised by today’s NHS strike.
But we can see that receipts were higher which squares the circle above.
Central government receipts in November 2022 were estimated to have been £69.2 billion, which was £3.2 billion more than in November 2021. Of these receipts, tax revenue increased by £2.2 billion to £51.6 billion.
Even though the numbers are up. some of them are disappointing when we allow for inflation such as VAT being up by 3.9%. That reinforces the struggles of the retail sector I think. There is a gain of £700 million from the new energy profits levy but that has provided its own critique from another area.
#UK > Biggest North Sea producer refuses to drill new oil wells because of windfall tax #HarbourEnergy opts out of licensing bid in blow to government ambitions to boost domestic supplies ( @chigrl )
There are a couple of curiosities in the risers. The idea of a struggling property sector does not quite go with UK Stamp Duty receipts being up by 10% at £1.5 billion. Also as smoking is so expensive I doubt people are using it as a stress reliever but receipts were up 42.1% at £1 billion.
What about Debt?
The headline is this.
Public sector net debt excluding public sector banks (PSND ex) was £2,477.5 billion at the end of November 2022, which was an increase of £125.9 billion compared with November last year…..to push public sector net debt at the end of November 2022 to 98.7% of GDP.
A decent slug these days relates to the Bank of England which changes the numbers quite a bit.
Our measure of public sector net debt excluding the public sector banks and the Bank of England (PSND ex BoE) removes the debt impact of these schemes along with the other transactions relating to the normal operations of the BoE. Standing at £2,176.0 billion at the end of November 2022 (or around 86.7% of GDP), PSND ex BoE was £301.5 billion (or 12.0 percentage points of GDP) less than PSND ex.
How should we treat this? About £200 billion of it is the Term Funding Scheme which is not really debt in the conventional sense as there are financial assets against it. So I would exclude it in any running total bringing us back down to 90-91% of GDP.
Comment
Against the bad news backdrop there was a some Christmas spirit to be found if we looked further into the numbers.
Since our last public sector finances bulletin on 22 November 2022, we have reduced our estimate of borrowing in the financial year to October 2022 by £1.1 billion.
Less borrowing by local government was the main player here.
Since our last bulletin, we have reduced our previous estimate of public sector borrowing in the FYE March 2022 by £7.3 billion, largely because of an update to our previously published information for government loan guarantee schemes, contributing to a £6.1 billion reduction in central government net borrowing.
As you can see that is quite a material change and shows the numbers are much less accurate than many claim even some time after the outcome.
Since our last bulletin, we have reduced our estimate of public sector net borrowing in the FYE 2020 by £3.3 billion, because of an update to our previously published student loans data.
The issue of student loan debt seems to be shambles from one end to the other.
Another piece of better news comes from the Bank of England financial stability intervention in the UK bond or Gilt market. It has reversed most of it now and so far is up around £4 billion. That is really rather awkward for those who claim it “lost” £65 billion.