Box sets » Public finances

Chart D: Planned SR21 and implied post-SR21 breakdown of RDEL spending
In November 2022 the government reduced its departmental (DEL) spending assumptions for the final three years of the forecast period. This box discussed the implications of the government's day-to-day and capital spending plans for various departments and public services during and after the 2021 Spending Review.
Chart E: Sensitivity of PSNB and underlying debt to interest rates
In 2022-23 we have seen sharp rises in gas prices and interest rates, both of which are forecast to remain elevated in 2023-24. This box presented the potential fiscal impacts of a higher-than forecast path for gas prices and two scenarios where Bank Rate is either a percentage point higher or lower than in our central forecast.
Chart 3.A: Discretionary fiscal tightening: the pandemic versus the financial crisis
The pandemic generated only modest structural damage to the fiscal position but did still create a gap in what the Chancellor considered a sustainable fiscal position. This box compared the scale of fiscal consolidation facing the chancellor and his approach to repairing the public finances with the challenge that faced Chancellor George Osborne after the financial crisis.
Chart 3.B: Public sector net borrowing effects of our alternative inflation scenarios
The level and nature of inflation has consequences for the public finances. This box explored the fiscal consequences of the sharp rise in inflation since our March 2021 forecast and examined the fiscal effects of the two scenarios described in Box 2.6 in our October 2021 EFO one where inflation is driven mainly by pressures in the product market, and the other mainly pressures in the labour market. The box concluded the labour market inflation scenario was significantly more beneficial for the public finances.

Economy categories: Inflation

Fiscal categories: Public spending, Receipts

Chart 3.C: Climate change scenarios: impact on public sector net debt in 2050-51
Our 2021 Fiscal risks report explored the fiscal risks posed by climate change and the Government’s commitment to reduce the UK’s net carbon emissions to zero by 2050. This box examined the policies announced in the Budget, Spending Review, and Net Zero Strategy in October 2021, and the significant rises in market prices for hydrocarbons since we completed our Fiscal risks report, and how they had changed the risks associated with climate change and decarbonisation.

Fiscal categories: Fuel duty, Public spending, Vehicle excise duties, Business rates

Cross-cutting categories: Climate change

Our pre-measures fiscal forecast was closed earlier than usual to give the Chancellor a stable base to make decisions for the Budget and Spending Review. This box described the impact of news since the forecast closed on headroom to the Government's fiscal targets.

Cross-cutting categories: Forecast process

Chart A: Long-term cost estimate of social care funding reforms as a share of GDP and relative to baseline spending
On 7 September 2021, the government announced a reform to the funding of adult social care in England. In this box, we described how this reform compares with the 2011 Dilnot Commission proposals and the reforms from the Care Act 2014 that were planned for April 2016 and then abandoned.

Fiscal categories: Public spending, Departmental spending

Cross-cutting categories: Ageing population, Demographics

Chart 3.A: Real GDP and tax revenues: October forecast versus outturn
Since our October 2021 EFO the real economy has performed largely as expected in 21-22 but tax receipts have come in well above that forecast. In this box, we examined reasons why tax receipts have recovered so quickly particularly in comparison to economic data.

Economy categories: Nominal GDP

Fiscal categories: Receipts, VAT, Income tax, Corporation tax

Cross-cutting categories: Coronavirus

Chart 3.C: Aggregate two-year pay growth in the first three quarters of 2021-22 and average effective tax rates by sector
This box considered the reasons for particular strength in income tax receipts since 2019. It covered the growth in aggregate pay across the income distribution using RTI data; looked at pay growth and effective tax rate by sector since 2019; and finally at how the freeze to tax thresholds from April 2022 will compound this strength in receipts.

Fiscal categories: Receipts, Income tax

Cross-cutting categories: Fiscal drag and price uprating

Chart 3.D: Electric vehicle new car market share
This box outlined the recent growth in electric vehicle sales and the fiscal implications of this and the role of policy in the transition.

Fiscal categories: Receipts, Vehicle excise duties, Fuel duty, Corporation tax

Cross-cutting categories: Climate change

Chart 3.E: Indicators of pressures on the NHS
The NHS is the largest single item of public spending in the UK, and has been placed under extraordinary pressure as a result of the pandemic. Historically, some of the largest policy-related revisions have related to health spending, including the £13 billion a year announced at the 2021 Spending Review. This box explores indicators of pressure across the health service and the potential for these pressures to result in risks to our forecast.

Fiscal categories: Public spending, Health

Cross-cutting categories: Coronavirus

Chart 3.F: Excess separation rates by firm size and pay in furloughed employments
In the final month of the coronavirus job retention scheme (September 2021), over 1 million people were still receiving payments from the scheme. In this box we explore the labour outcomes, up to January 20222, for this population after the closure of the scheme, compared to individuals in employment who were not on furlough in September 2021.

Economy categories: Labour market

Cross-cutting categories: Coronavirus

Chart 3.G: CGNCR ex revisions between March 2021 and March 2022 forecasts
Forecasts for the government's cash borrowing in 2021-22 were revised significantly between the March 2022 and October 2021 forecast, with even larger revisions between March 2021 and March 2022. In this box we decomposed the sources of these revisions, and explained why cash borrowing outturn was much lower than forecast in March 2021, as well as why the revisions to cash borrowing were much higher than those for accrued borrowing.
Table A.A: Fiscal impacts of policy changes to the student finance system
On 24 February 2022 the Government introduced a raft of changes to the working of the higher education student loans system in England. In this box we: summarised the reforms, explained their impacts on the complex accounting for student loans, and showed the overall impact on the latest forecast.
Chart 3.A: Real value of selected benefit rates following recessions
The real-terms value of benefits was forecast to fall by around 5 per cent in 2022-23 (£12 billion in total) before catching up the year after, largely due to the significant rise in inflation and the lag in benefit uprating. In this box we compared these post-pandemic uprating dynamics to the real value of non-pensioner benefit rates following the previous three recessions. This showed that the forecast trough in the real value of benefits was deeper in the wake of the pandemic than for any of the previous three recessions.
Chart 4.A: Child benefit take-up rates for 0-year-olds
Take-up of child benefit had been declining since 2012-13, but this downwards trend accelerated at the onset of the Covid pandemic in March 2020, which resulted in a steep decline in take-up over the subsequent 18 months. In this box, we considered the main drivers of the child benefit caseload and the effect the pandemic had on each of them. We set out the reasons why the pandemic contributed to lower take-up, and then considered the medium-term impact of the pandemic-driven drop in take-up on our forecast.

Fiscal categories: Child benefit, Welfare spending

Cross-cutting categories: Coronavirus

In the March 2021 EFO we estimated that policy measures responding to the coronavirus pandemic would add £344 billion to borrowing, with these policies announced across a number of statements beginning alongside the March Budget. This box updated on our estimate of this cost from November and the relative shares of support going to households, businesses and for public spending.

Fiscal categories: Public spending

Cross-cutting categories: Coronavirus

Chart B: Onshore corporation tax receipts versus the headline rate
The rise in the main rate of corporation tax (CT) announced at Budget 2021, from 19% to 25% – from 2023-24, marks the first rise in the main rate of onshore CT since 1974. This box put this policy change in its historical and international context, by looking at onshore CT receipts as a share of GDP within the UK since its inception in 1965, and by looking at other corporate tax rates across OECD countries.

Fiscal categories: Receipts, Corporation tax

Chart E: Change in real RDEL spending in 2022-23
This box discussed the risks to our medium-term forecast of day-to-day departmental (RDEL) spending, particularly in relation to the impact of the pandemic.

Fiscal categories: Public spending, Departmental spending, Health, Education

Cross-cutting categories: Coronavirus

Chart F: Sectoral furlough usage versus GVA shortfalls relative to February 2020
In this box, we discussed how the hospitality, wholesale and retail, arts, manufacturing and construction sectors, as well as the economy as a whole, adapted the usage of the furlough scheme in relation to output, and commented on the increased level of employees on furlough relative to the loss in output in the November 2020 and January 2021 lockdowns when compared with the April 2020 lockdown.

Economy categories: Labour market

Fiscal categories: Public spending

Cross-cutting categories: Coronavirus

On 4 February 2021 the Government published its response to the December 2018 Court of Appeal ruling that the transitional protection arrangements in place across public service pension schemes based on years from retirement constituted a form of unlawful discrimination on the basis of age, commonly known as the ‘McCloud-Sargeant case’. This box explored the potential fiscal impacts of the Government’s remedy, as it was not possible to reflect the costs directly in our March 2021 EFO due to remaining uncertainty around the schemes’ implementation of the response.

Fiscal categories: Public spending, Public service pension payments

Cross-cutting categories: Pensions

Chart G: UKIB lending forecast relative to historical EIB lending
The Government announced the establishment of a new UK Infrastructure Bank (UKIB) at Budget 2021 to tackle climate change and support regional and local economic growth. It does this in part by replacing some of the activity of the European Investment Bank (EIB). This box looked at how UKIB will operate and how this compares to the EIB, as well as briefly exploring potential fiscal and classification risks.

Fiscal categories: Financial transactions

Cross-cutting categories: Climate change

Chart A: Mean maturity and redemption distribution of gilts
The average maturity of UK government bonds is longer than the average maturity of government debt in most other advanced economies. But the average maturity of the net debt of the public sector as a whole (including the Bank of England) has shortened considerably since the global financial crisis. In this box, we explored how the Bank of England's quantitative easing operations have shortened the maturity of public sector net debt, dramatically increasing the sensitivity of debt interest spending to changes in short-term interest rates.

Fiscal categories: Debt interest spending

Chart A: International comparisons of virus, public health measures and
The coronavirus pandemic has forced governments around the World to introduce measures to curtail both the health, and economic impacts of the virus. This box aimed to compare the impacts on health and the economy of the virus with those of other selected countries, alongside the stringency of measures introduced by their respective governments.

Cross-cutting categories: International comparisons, Coronavirus

Chart 3A
In the November 2020 EFO we estimated that policy measures responding to the coronavirus pandemic would add £280 billion to borrowing in 2020-21, with these policies announced across a number of statements beginning alongside the March Budget. This box considered the main statements contributing to this cost and the nature of the support included in these announcements.

Fiscal categories: Public spending

Cross-cutting categories: Coronavirus

Chart 3B
The pandemic has undoubtedly had a negative impact on public finances of countries around the world, but questions remain regarding the impact on the immediate and long-term fiscal positions of the UK relative to other major advanced economies. In this box, we considered the immediate term impact on primary deficits and the extent to which this reflected discretionary policy packages; the size of discretionary policy packages and the use of direct tax and spending policy versus liquidity support; and the impacts in the longer term on structural deficits and debt, including revisions between the IMF’s October 2019 and October 2020 WEO.
Chart 3C
Despite debt rising as a share of GDP to a new post-war peak in our November 2020 forecast, government spending on debt interest was expected to fall to a new historic low as a share of total government revenue. This box explored how this had left the public finances more sensitive to future changes in the cost of servicing this higher debt burden.

Fiscal categories: Debt interest spending

Chart 4A
The debt-stabilising primary deficit depends on the level of debt, nominal growth rates, the effective nominal interest rate, and any 'stock-flow adjustments'. This box discussed the historical evolution of the debt stabilising primary balance, and also explained why it may appear to be ‘easier’ to stabilise debt the higher it rises, and the fiscal risks that such an interpretation entails.

Fiscal categories: Primary balance

Cross-cutting categories: Fiscal risk management

The economic and fiscal impact of the pandemic around the world
The coronavirus pandemic has hit the economic and public finances of all countries around the world as a result of lockdown measures imposed to control the outbreak and fiscal support provided to aid individuals and businesses. In this box we assessed how the UK had fared relative to other major advanced economics by looking at pandemic-related indicators and forecasts.

Fiscal categories: Public sector net borrowing

Cross-cutting categories: Coronavirus, International comparisons

Performance against the Budget 2020 fiscal rules
At Budget 2020 we assessed the Government's performance against the three proposed fiscal rules that featured in the Conservative Party's 2019 election manifesto. In this box we assessed whether the Government could meet these fiscal rules under our central, upside and downside scenarios.