Press release

21 Oct 2020 London, GB

UK public finances record another large deficit in September, headed for shortfall of around £365bn in 2020/21 – EY ITEM Club comments

The budget deficit in September was the third largest monthly shortfall on record, although it was at least clearly below the record, peak levels seen in May and April.

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Related topics Growth COVID-19
  • The budget deficit (Public Sector net Borrowing excluding banks – PSNBex) recorded another large shortfall in September as it was lifted again by reduced receipts and the costs of the Government’s efforts to support the economy
  • The budget deficit in September was the third largest monthly shortfall on record, although it was at least clearly below the record, peak levels seen in May and April. This is a consequence of the economy recovering substantial ground from its April lows and more people coming off the furlough scheme and returning to work
  • PSNBex came in at £36.1bn in September – the largest September shortfall on record and up substantially from £7.7bn in September 2019. It was up from £30.1bn in August (revised down from the previous estimate of £35.9bn)
  • The revision for August (following similar revisions to the April-July shortfalls) highlights that public finances are currently subject to significant updates amid the unprecedented circumstances
  • Central government receipts fell 13.4% year-on-year in September, while central government expenditure increased 29.7% year-on-year
  • The first half of fiscal year 2020/21 (April-September) has seen the largest six deficits since records began in 1993. On top of the cost of COVID-19 measures, the overall weakness of the economy has also limited receipts
  • Consequently, the budget deficit (PSNBex) amounted to a record £208.5bn over the first half of fiscal year 2020/21, up from £34.0bn in April-September 2019. To put this into perspective, it is already up £153.7bn on the total PSNBex of £54.8bn for 2020/21 that the Office for Budget Responsibility (OBR) had forecast in the March Budget. It is also already £50.8bn more than the peak £157.7bn deficit in 2009/10 during the financial crisis
  • The state of the public finances over April-September heralds what is going to be a record year by far for the budget deficit. The deficit could be increased further if the Chancellor feels that there is a need to enact further supportive measures as rising COVID cases lead to more restrictions
  • The EY ITEM Club currently expects the budget deficit (measured in terms of PSNBex) to come in around £365bn in 2020/21 (17.5% of GDP)

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

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

“PSNBex came in at £36.1bn in September – the third largest monthly shortfall on record and up substantially from £7.7bn in September 2019. It was also up from £30.1bn in August (revised down markedly from the previous estimate of £35.9bn).

“The budget deficit in September was still below the record, peak levels seen in May (£43.6bn) and April (£47.9bn. This is a consequence of the economy seeing a rebound in the third quarter after its record second quarter contraction and more people coming off the furlough scheme and returning to work.

“The downward revision to August’s deficit (following similar downward revisions to the shortfalls originally reported for April-July) highlights that public finances are currently subject to significant updates amid the unprecedented circumstances.

“The budget deficit (PSNBex) amounted to a record £208.5bn over the first half of fiscal year 2020/21, up from £34.0bn in April-September 2019. To put this into perspective, it is already up £153.7bn on the total PSNBex of £54.8bn for 2020/21 that the Office for Budget Responsibility (OBR) had forecast in the March Budget. It is also already £50.8bn more than the peak £157.7bn deficit in 2009/10 during the financial crisis.

“Central government receipts fell 13.4% year-on-year in August. VAT receipts were down 30.1% year-on-year, corporation tax receipts fell 12.8% year-on-year but income and capital gains tax receipts edged up 1.1% year-on-year. VAT receipts are currently being limited by the temporary VAT cut (from 20% to 5%) for the hospitality sector. Additionally, Stamp Duty receipts have been reduced by the temporary raising of the threshold since July.

“Over the first half of fiscal year 2020/21 (April-September), central government receipts were down 11.6% year-on-year. VAT receipts were down 19.5% (companies were allowed to defer VAT payments between 20 March and 30 June), corporation tax receipts were down 16.0% and income and capital gains tax receipts were down 6.5% year-on-year.

“Meanwhile, central government expenditure increased 29.7% year-on-year in September as it was pushed up by government measures to support the economy, businesses and jobs in the face of the pandemic. There was £5.9bn spent on the current job furlough schemes: the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS).

“Over the first six months of fiscal year 2020/21, central government expenditure was up 34.0% year-on-year.”