Introduction

Underline 21st July 2024 in your diaries.

This will be the publication date of the Office for National Statistics data for the UK’s public debt in June 2024.

Barring a turnaround in the direction-of-travel, the debt will exceed 100% of GDP.

UK public finances between January and May 2024

Debt was 99.8% of GDP in May, although for some obscure reason the ONS specified neither the GDP nor the debt figures outright.[1]

GDP began the year at £2.274 trillion.[2] It increased by 0.6% from January to March 2024.[3] There was no growth in April 2024.[4] It then increased by 0.4% in May 2024.[5] That is a 1% increase this year, inferring annualized GDP of £2.297 trillion at the end of May (actually £2.29674 trillion).

It is unclear whether the ONS uses the December 2023 GDP figure as its baseline, or its own statistic for the previous month. In the latter case GDP for May will also have been £2.297 trillion when rounded, but higher in actuality at £2.296794576 trillion – 100.04% of their April GDP figure, which was 100.06% of their December figure.

At the average rate between January and May, UK GDP expanded by between £4.5 billion and £4.6 billion a month.

Government receipts, spending and borrowing in May

In May, the government had £76.8 billion of receipts, and made £91.6 billion of payments, forcing it to borrow the difference of £14.8 billion. This £14.8 billion was added to the national debt.

If debt was 99.8% of GDP in May, it would have been £2.292 trillion on that date (£2.297 trillion x 0.998).

It stretches credibility that the government was able to spend £91.6 billion in a single month, and that its budgeting (or lack of it) resulted in its having receipts that were only 84% of its payments. No household could survive long like that.

What are the prospects for June?

If May’s 0.4% increase in GDP is repeated in June, GDP will rise by between £9.1 billion and £9.2 billion, and will be £2.306 trillion at the end of June. If June reverts to the 2024 pro-rata, however, it will have increased to £2.301 trillion.

June is not a month in which taxpayers make ‘On Account’ instalments for their expected tax liability for 2024/5, so there will be no such spike of receipts in June as there is in January and July.

We have a range for GDP, between £2.301 trillion and £2.306 trillion.

If GDP is £2.301 trillion, June borrowing would only need to be £9 billion for the national debt to increase from £2.292 trillion to £2.301 trillion, the same as GDP.

If GDP is £2.306 trillion, June borrowing would need to be £14 billion for the national debt to increase from £2.292 trillion to £2.306 trillion, the same as GDP – and this would be less than May’s borrowing of £14.8 billion.

Who we can thank for hitting the 100% milestone

The achievement of a Debt-to-GDP ratio of 100% would be both a testament to the UK’s fiscal incontinence, and to the failure to restore order by the supposed ‘grown-ups’ who took over the controls from Liz Truss and Kwasi Kwarteng in October 2022. The ‘grown-ups’ include the outgoing Prime Minister and Chancellor of the Exchequer, their parliamentary supporters, Treasury officials, the senior executives of the Bank of England, and the staff of the Office for Budget Responsibility.

The wider circle of ‘grown-ups’ embraces the eco-system of commentators, broadcasters, journalists, and opposition politicians who acted as an amplifier for the narrative that Truss and Kwarteng were irresponsible mavericks, and had engendered a situation from which the subsequent round of tax increases, incremental spending and rising borrowing were the only plausible way forward.

Labour spending plans and unfunded future liabilities

This is not the worst of it, however. The incoming Labour government wishes to boost spending in a number of areas but they will be obligated, before doing that, to find the money with which to meet a list of bills on behalf of the taxpayers.

The one that has just landed is a larger-than-expected compensation bill for Armed Forces personnel whose hearing was damaged by gunfire in combat, where the Ministry of Defence failed to supply ear muffs (or an attending local council employee to measure the level of noise on the battlefield and ask the Taliban to stop firing).[6] Now that the law as it currently exists has validated this as a benchmark for people to claim compensation for the conditions pertaining to their normal occupation, the potential list of liabilities is endless.

Primary list of unpaid bills

This is a list of Primary costs, meaning that each item has already been identified, and the UK public definitely has to meet the loss:

  1. CIBILS loan scheme fraud
  2. Infected blood
  3. Grenfell Tower
  4. Quantitative Tightening by the Bank of England
  5. Post Office Horizon IT project
  6. Private Finance Initiative (£133 billion left to pay through to 2053, according to 2023 government estimate)
  7. EU payments
  8. British Business Bank ‘Future Fund’ losses
  9. Redemption uplift on index-linked government debt
  10. Windrush compensation
  11. HS2 compensation

Secondary list of unpaid bills

Here is a non-exhaustive Secondary list of bills that are emerging, which are not accurately quantified, and which the UK public may be called upon to pay because the primary obligor lacks sufficient funds or proves ineligible to pay:

  1. Car loans extended by lenders other than major banks
  2. Financing of student loans (because the student proves ineligible to repay)
  3. Reimbursement for Authorised Push Payment Fraud (where the obligor is a small bank or non-bank payment service provider and cannot pay, and there is no recourse to the Financial Services Compensation Scheme)
  4. Bankrupt places of higher education
  5. Bankrupt local authorities
  6. Pension Protection Fund, where it assumes the liabilities of company schemes, the companies having become insolvent, and these schemes have liabilities to members that cannot be met because the scheme’s assets are concentrated in Liability-Driven Investments and other ‘Alternative Investments’
  7. Pension schemes of public sector employers where, unlike civil service pensions, the government is not the employer and an investment fund exists behind the scheme, but the liabilities to members cannot be met because the scheme’s assets are concentrated in Liability-Driven Investments and other ‘Alternative Investments’
  8. Financial Services Compensation Scheme (FSCS), thanks to the potential claims upon it from several angles (e.g. where a bank regulated by the UK Prudential Regulatory Authority fails and the bank holds eMoney customer balances for a UK-licenced issuer of eMoney – the FSCS is liable to repay the account balances of the eMoney holders when they would not have to if the bank was in Lithuania or Cyprus and failed)

Conclusion

The wide coterie of ‘grown-ups’ has let the country down. Public finances are out of control. The UK’s debt carries a credit rating of AA with a ‘Stable’ outlook, assigned in April 2023, but outlook now is anything but stable and the direction of travel is downwards. The taxpayer is not a bottomless pit but they need to be in order to meet the current tax burden and all the losses coming their way – and that is without Labour’s increases in expenditure.

[1] https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/may2024 accessed on 10 July 2024

[2] https://www.statista.com/topics/3795/gdp-of-the-uk/ accessed on 10 July 2024

[3] https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/januarytomarch2024 accessed on 11 July 2024

[4] https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/april2024

[5] https://www.msn.com/en-gb/money/other/uk-economy-returns-to-growth-in-may-as-gdp-rises-by-0-4/ accessed on 11 July 2024 

[6] https://www.bbc.co.uk/news/articles/c29d4l36139o accessed on 11 July 2024