Press release

19 Jun 2020 London, GB

UK public finances in deficit by record £55.2b in May as coronavirus measures affect receipts and spending – EY ITEM Club comments

The budget deficit (PSNBex) jumped to £55.2 billion in May from £5.7 billion a year earlier. However, this was partly offset by April’s shortfall being revised down significantly to £48.5 billion from the previously reported £62.1 billion.

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Related topics Growth COVID-19
  • The budget deficit (PSNBex) jumped to £55.2 billion in May from £5.7 billion a year earlier. However, this was partly offset by April’s shortfall being revised down significantly to £48.5 billion from the previously reported £62.1 billion
  • The downward revision to April’s deficit highlights that the public finances are going to be subject to major revisions over the coming months
  • May’s public finances were affected by both increased government spending and reduced receipts, which reflected contracting economic activity and the delaying of tax payments for businesses and on VAT
  • The budget deficit (PSNBex) amounted to a record £103.7 billion over the first two months of fiscal year 2020/21, up from £16.7 billion in April-May 2019. To put this into perspective, it is already up £48.9 billion on the total PSNBex of £54.8 billion for 2020/21 that the Office for Budget Responsibility (OBR) had forecast in the March budget
  • The April and May figures are likely just the start of what is going to be a record year for the budget deficit
  • Increases in the deficit should slow appreciably later in the year as government support measures for the economy are wound down, and the economy hopefully starts to recover after a likely record contraction in the second quarter
  • The EY ITEM Club expects the budget deficit (measured in terms of PSNBex) to get up to at least £320 billion in 2020/21 (15.6% of GDP), and it could well exceed this level
  • Central government receipts fell 28.2% year-on-year in May, as they were affected by a combination of reduced economic activity, rising unemployment and weaker earnings, deferred VAT payments for retailers, and companies being allowed to delay tax payments
  • Central government expenditure rose 49.8% year-on-year in May as it was pushed up by government COVID-19 support measures

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“The public finances measured in terms of Public Sector Net Borrowing excluding Banks (PSNBex) saw a second successive shortfall in May – the second month of fiscal year 2020/21 – as the Government’s COVID-19 support measures for businesses and jobs fed through, both in terms of reduced receipts and substantially increased public spending.

“PSNBex jumped to a record £55.2 billion in May from £5.7 billion a year earlier.

“However, April’s shortfall was revised down substantially to £48.5 billion from the previously reported £62.1 billion. This was up from £11.1 billion a year earlier. The ONS reported that April’s downward revision was “largely because of stronger than previously estimated tax receipts and National Insurance contributions, and lower expenditure than previously estimated associated with the Coronavirus Job Retention Scheme.

“The downward revision to April’s deficit highlights that the public finances are going to be subject to major revisions over the coming months.”

Howard Archer continues: “Some decent news for the Government – although fiscal year 2019/20 already seems an age away – saw the PSNBex for fiscal year 2019/20 trimmed to £56.6 billion from the previously reported £62.7 billion, meaning that March’s budget target of £47.4 billion was missed by a reduced margin of £9.2 billion. However, this seems insignificant compared to the likely budget deficit in 2020/21.

“The budget deficit (PSNBex) amounted to £103.7 billion over the first two months of fiscal year 2020/21, up from £16.7 billion in April-May 2019. To put this into perspective, it is already up £48.9 billion on the total PSNBex of £54.8 billion that the Office for Budget Responsibility (OBR) had forecast in the March Budget.

“Central government receipts fell 28.2% year-on-year in May, as they were affected by a combination of contracting economic activity, rising unemployment and weaker earnings, VAT payment deferrals for retailers and companies being allowed to delay tax payments.

“Income and capital gains tax receipts were down 32.0% year-on-year in May, as a result of job losses and reduced incomes. There was also a fall of 13.2% in corporation tax receipts while VAT receipts were down 46.0% year-on-year.

“Over the first two months of fiscal year 2020/21 (April-May), central government receipts were down 20.8% year-on-year. Income and capital gains tax receipts were down 22.6% year-on-year, VAT receipts were down 33.8% and corporation tax receipts were down 12.8%.

“Meanwhile, central government expenditure jumped 49.8% year-on-year in May as it was pushed up by government measures to support the economy, businesses and jobs in the face of the pandemic.

Howard Archer adds: “Over the first two months of fiscal year 2020/21 (April-May), central government expenditure was up 51.4% year-on-year.”