- The public finances started fiscal year 2021/22 with a large shortfall in April as the economy continued to receive fiscal support. However, the deficit was well below the record level seen in April 2020 when the double-digit economic contraction had a significant impact on receipts
- Public Sector Net Borrowing excluding banks (PSNBex) came in at £31.7bn in April. This was the second highest April shortfall ever but was down from a record £47.3bn in April 2020. It had been £10.6bn in April 2019
- Some modestly welcome news for the Chancellor saw PSNBex for 2020/21 trimmed to £300.3bn (14.3% of GDP) from the previously reported £303.1bn (14.5% of GDP). This is well below the £354.6bn forecast by the Office for Budget Responsibility (OBR) in the March Budget
- However, there will undoubtedly be significant revisions to the data, and the Office for National Statistics (ONS) is yet to incorporate estimates of the likely level of write-offs from the various government-backed loan schemes. The OBR currently expects these to be around £27.2bn
- April’s reduced year-on-year (y/y) shortfall was due to higher tax receipts and lower government spending on measures to support the economy and jobs. Central government receipts rose 7.0% y/y in April, while central government expenditure fell 11.9% y/y
- The Budget provided further major fiscal support for businesses and jobs in 2021/22 to try to ensure that the economy can overcome still-significant COVID-19 risks. Consequently, the OBR forecasts the budget deficit to be as high as £233.9bn in 2021/22. This is based on projected GDP growth of 4.0% in 2021, which now looks a very pessimistic view
- The EY ITEM Club had forecast the 2021/22 budget deficit could come in significantly lower – around £215bn (9.2% of GDP) – given a more optimistic view about the UK growth outlook for 2021. The EY ITEM Club now says there is a growing possibility that PSNBex could be below £200bn in 2021/22 given better than expected growth and labour market performances.
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 deficit of £31.7bn in April. This was down from a record £47.3bn in April 2020, but still up significantly from £10.6bn in April 2019.
“The consensus forecast had been for a deficit of £32.0bn in April, so the outturn was in line with expectations.
“Meanwhile, the overall budget deficit for 2020/21 was revised down to £300.3bn (14.3% of GDP) from the previously reported £303.1bn (14.5% of GDP). This is well below the £354.6bn forecast by the Office for Budget Responsibility (OBR) in March’s Budget. However, it should be noted that the Office for National Statistics (ONS) is yet to incorporate estimates of the likely level of write-offs from the various government-backed loan schemes, which the OBR currently expects to be around £27.2bn. The shortfall in March was reduced to £26.3bn from the previously reported £28.0bn.
“The Government’s measures to support businesses and jobs affected by COVID-19 still affected receipts in April although these clearly benefitted from stronger economic activity as well as an improved economic labour market.
“Meanwhile, government expenditure continued to be lifted by measures to support the economy and jobs.
“Central government receipts rose 7.0% year-on-year in April. VAT receipts were up 8.8% year-on-year. VAT receipts are currently being limited by the temporary VAT cut – from 20% to 5% – for the hospitality and leisure sectors, while non-essential retailers were closed until 12 April. By contrast, non-essential retailers were closed throughout April 2020. Income and capital gains tax receipts rose 31.1% year-on-year in April, as earnings have increased recently.
“Meanwhile, central government expenditure dipped 11.9% year-on-year in April but was still at an elevated level amid government measures to support the economy, businesses and jobs in the face of the pandemic. There was reduced spending on the current job furlough schemes and the ONS reported that central government paid £7.5bn in subsidies to businesses and households in April 2021, £5.9bn less than in April 2020. These payments included the cost of the job furlough scheme."