Author Archives: Scott Grassick

National Living Wage 2024/25

press release from the Treasury at the start of this week was headlined ‘Chancellor announces major increase to National Living Wage [NLW]’. The release’s timing probably had more to do with where the Chancellor was – at the Conservative Party conference in Manchester – than its newsworthiness. If there is no scope for cutting taxes, then announcing wages increases is not a bad substitute.  

The Low Pay Commission (LPC), whose job it is to set the NLW and the National Minimum Wage (NMW), issued a consultation back in March 2023 which proposed an NLW rate from next April of between £10.90 and £11.43  an hour with a central estimate of £11.16. That would represent a 7.1% rise on the current rate of £10.42. The LPC’s consultation closed in early June and on Monday Jeremy Hunt said the minimum figure would be at £11.00 an hour.   

The forthcoming NLW decision has added significance because in 2019 the government set a target that the NLW should equal two thirds of median pay by 2024/25. As the press release also noted, April 2024 was also that time at which the NLW minimum age would be reduced from the current 23 to 21. At present the NMW for 21–22-year-olds is £10.18. 

The precise figures for 2024/25 are likely to emerge in the Autumn Statement once the LPC crunches the latest pay data to arrive at its final recommendation. The most recent annual rate of average weekly earnings growth (including bonuses) was 8.5% for the May-July period. When the LPC issued its consultation six months ago, the corresponding figure (for November 2022 – January 2023) was 5.7% (6.5% excluding bonuses). 

If the settled figure is £11.00 an hour – which looks low, given the above – then it will mean that by April 2024 the NLW will have risen by 52.8% since its introduction in April 2016. Assuming inflation will be around 4% by April 2024, the corresponding increase of the CPI over the same period will be about 34%. Take a slowing earnings growth to April 2024 of 5% and average earnings will have grown by about 38%.  

Comment

The NLW increase will affect over two million employees (and their employers). One point the Chancellor’s press release failed to explain was the inflationary impact of countenancing pay increases of at least 5.5%. The Bank of England would not consider that a level compatible with 2% inflation.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

New legislation paves way to expand the scope of automatic enrolment

A Private Members Bill aiming to expand the scope of automatic enrolment has received Royal Assent.  

The new legislation provides powers to abolish the Lower Earnings Limit for contributions and reduce the age for being automatically enrolled from 22 to 18.

The DWP press release states that the changes mean that millions more people including younger and lower earning workers will be helped to save more into their pensions. It also states that these changes combined with the Mansion House Reforms announced by the Chancellor in July, mean that a minimum wage earner could see their pension pot increase by over 85%.

Minister for Pensions, Laura Trott, said:

“Automatic enrolment has been a phenomenal success, and we are determined to go further. It’s great news that the Private Members’ Bill has successfully passed through Parliament and received Royal Assent.

This will mean younger workers and those in lower paid employment will be able to fully participate in Automatic Enrolment. For the first time, every eligible worker will benefit from an employer contribution from the first pound earned – which will make a huge difference to their eventual pension.”

Importantly, the new legislation will not result in any immediate change. It simply provides the powers to amend the age limit and lower the qualifying earnings limit for automatic enrolment. Any changes will be subject to consultation before implementation. The consultation is expected to be issued shortly. However, employers are expected to be given significant notice before the changes need to be implemented.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

Triple Lock 2024 – more thoughts

We noted in a recent Bulletin that the May-July earnings growth figure implies an 8.5% rise in the New and old (Basic) State Pension, assuming that an untweaked Triple Lock formula is applied with effect from April 2024. That assumption, which is beginning to look a little shaky, would have some interesting consequences:

The amounts. The Institute for Fiscal Studies (IFS) calculates that the old State Pension should rise from £156.20 per week to £169.50 and the New State Pension from £203.85 per week to £221.20. Those State Pension benefits that are not Triple Locked (e.g. Additional Pension) look set to see smaller percentage increases – probably around 7% based on September’s CPI figure (due 18 October). In April 2023, the CPI was the Triple Lock factor of choice, so all State Pension elements rose at the same rate.

Treasury cost. The Office for Budget Responsibility (OBR)’s estimate for the 2024 Triple Lock increase, included in the March 2023 Economic and Fiscal Outlook (EFO) was 6.2%. The IFS calculates the extra 2.3% will add £2bn to State Pension spending in 2024/25. That is arguably at least £2bn a year extra as the ratchet effect means that the 2025 increase will start from the 2024 pension level.  

Income tax. We commented in an earlier Bulletin on the interaction of the Triple Lock and the frozen personal allowance. The 8.5% adds a further twist. If in 2024/25 the New State Pension is £11,502.40 a year, it will be £1,068 below the personal allowance. From there increases averaging just over 3.0% a year are needed for the New State Pension to exceed the frozen personal allowance by 2027/28, the (currently scheduled) last year of the six-year allowance freeze.

If the Triple Lock remains after the election – a big if – then once the pension/allowance crossover happens it will take above-inflation increases to the personal allowance to reverse the situation. The Government is dragging a growing number of people into tax – an extra 3.2m over the period of the personal allowance freeze, according to the March 2023 EFO. HMRC is already creaking, so how it will deal with a large influx of new ‘customers’ ought to be a concern for the Treasury. Alongside the rise in State Pension income is the substantial jump in interest rates, which will also create more taxpayers given the personal savings allowance is still at its initial 2016 level.

Intergenerational fairness. A possible 8.5% increase for pensioners inevitably raises the topic of intergenerational fairness, particularly when there is also talk that in-work benefits may rise by 1% below CPI inflation to provide scope for tax cuts. In March 2023, the Low Pay Commission estimated that the National Living Wage (NLW – currently £10.42 a hour) would need to be between £10.90 (+4.6%) and £11.43 (+9.7%) in 2024/25 to meet the Government’s target of the NLW equaling two thirds of median hourly pay by October 2024. The Commission’s central case was £11.16 (+7.1%).

However, those calculations were based on 5.0% earnings growth in 2023 – the OBR projection. The difference between outcome and projections points to a possible NLW rise of around 10%, which is not a figure either the Chancellor or the Bank of England would wish to see. More detail should become clear next month, when the Commission is due to makes its recommendation for 2024.

The first Budget after an election is generally the one that contains the largest tax increases. The next Budget première may be the one that finally kills off the Triple Lock – if neither of the parties puts its preservation in their manifestos. That in turn could become a game of publication date chicken: whoever prints first will effectively make the decision for both parties.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

UK dividend payments fell sharply in the second quarter, but there was a special reason for the drop

If you have been wondering why the Link Asset Services Dividend Monitor figures seem to have disappeared, the answer is in the first word: Link. In April 2023, the Link Group agreed the sale of its UK business to finance FCA mandated compensation for Link’s involvement in the collapse of the Woodford funds in 2019. The quarterly Dividend Monitor has now moved under Computershare’s wing.

Computershare has recently published its Q2 2023 UK dividend monitor, showing what appears to be bad news: a second quarter fall of 9.0% in headline dividend payments. However, as is often the case with one set of figures, the context is all important:

  • In Q2 2022, there was a bumper crop of special dividends. These one-off payments totalled £5.0bn, of which nearly 80% originated from just three companies; Aviva, Rio Tinto and Anglo American. In Q2 2023, the special dividend feast turned to famine, with the one-off total down over 80% at £704 million.
  • The loss of £4.3bn of special dividends between Q2 2022 and Q2 2023 meant that total dividends payouts were £3.2bn lower (9.0%) in 2023 at £32.8bn.
  • Underlying (regular) dividends were £32.2bn, up 3.5% on 2022, although this was a decline from the first quarter’s rise of 5.2%.
  • Computershare notes that ‘By far the biggest contribution came from the banks which have been reporting very strong profits. They paid £7.8bn, up by three fifths year-on-year.’ A good example is HSBC, which paid a dividend of 18.0c in April 2022. In 2023 the bank paid 23.0c in April, followed by another 10.0c in June as it resumed quarterly payments that had been suspended in response to the pandemic.
  • The Bank sector saw headline dividends up by 59.3%, although in terms of growth (but not total payments) it was beaten by 63.5% growth in dividends from Airlines, Leisure & Travel sector. There were some significant falls too, in part associated with the lack of special dividends. Thus, the General and Life Insurance sector saw a 57.8% decline and mining recorded a 32.7% headline drop.  
  • Payouts from the Top 100 companies fell 8.1% year-on-year on a headline basis, for which special dividends can again take the blame. On an underlying basis dividends grew by 5.8%, with banks being the biggest driver. The Top 100 companies accounted for 89% of all dividend payments in Q2 2023, 1% more than in 2022. Mid-cap payments fell in Q2 2023, due to the takeover and delisting by private equity groups of Direct Line Insurance and Homeserve and the takeover of Micro Focus International. Exclude these three, and underlying payments would have been around 3% up year-on-year.
  • The concentration of dividend payouts in a handful of companies decreased in comparison with Q2 2022, again due to disappearing special dividends. Nevertheless, the top five payers (HSBC, Rio Tinto, Glencore, Shell and British American Tobacco) accounted for 34.8% (cf 37.3%) of total payments. The next ten companies accounted for 27.6%, (cf 25.1%%) meaning that just 15 companies were responsible for 62.4% of all UK dividends in the quarter, the same proportion as a year ago.
  • Computershare has upgraded its dividend forecast for 2023, but still sees a headline decline of 1.7% because of the drop in special dividends. On an underlying basis it is forecasting 6.1% growth.

Comment

Computershare makes the point that, while the prospective yield for the top 100 companies increased to 4.0% in Q2, yields in other asset classes rose faster during the quarter. Ten-year gilts (4.66%) and the best instant access savings account (4.35%) were both offering better-than-equity yields by the end of June.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.

High Income Child Benefit Charge and separated couples

Child Benefit is paid upon a claim to the parent or carer of a child up to the age of 16, or 20 if in approved education or training.

The HICBC, introduced in January 2013, remains a prime example of how not to design and operate a tax. As a reminder, the aim of HICBC is to make any Child Benefit recipient repay some or all of their Child Benefit back (as tax) if they or their partner has an individual adjusted net income exceeding £50,000 per year. The repayment is at the rate of 1% of total benefit paid for each £100 of income above the threshold, up to £60,000, at which point the tax charge matches the total benefit.

The Low Incomes Tax Reform Group (LITRG) has published a warning to separated couples following a recent First-tier Tribunal decision (Meades v HMRC) that a parent was liable for the HICBC, despite the fact that the benefit was paid to their former partner. In this case, Mr Meades had separated from his ex-wife in 2017. He was found liable for a £1,076 HICBC for the 2019/20 tax year even though the Child Benefit payments were made to his ex-wife, because he was the Child Benefit claimant, and, in that tax year, his adjusted net income was higher than £50,000.

The LITRG has also been contacted by others in a similar position and has published information on what claimants can do if faced with this situation.

Child Benefit is always claimed by an individual, not a couple. The claimant is the person who completes and signs the form to make the claim, even if they choose for their partner to receive the benefit payments. As some years may have passed between the original Child Benefit claim being made and the separation, it’s possible that people may have forgotten who the claimant originally was and assume it is the person getting the payments.

If a couple separates, the claimant could become liable for the HICBC if their adjusted net income later exceeds the £50,000 threshold, even if the payments are paid into their former partner’s account. It is also possible that any new partner of the claimant might become liable to the HICBC if they exceed the threshold and are the higher earner, even if they had nothing to do with the original claim. This is because the way the charge is worked out initially looks at the adjusted net income of the person who made the claim and any partner they have. (A ‘partner’ for HICBC purposes means a spouse or civil partner (unless separated), or someone with whom the person is living together as if married or in a civil partnership).

The LITRG is urging child benefit claimants to review their Child Benefit arrangements if they have separated from the partner they had when the claim was originally made. In doing this, claimants should check that these arrangements continue to be appropriate to their circumstances and to avoid being unwittingly exposed to the HICBC.

Some separated couples may decide they want the person who made the original claim to continue doing so, even if the Child Benefit payments are being paid to the other parent or carer (for example, a claimant who is not receiving the payments themselves may require the National Insurance credits awarded with a Child Benefit claim for their own State Pension), while others may seek a new arrangement – particularly in cases where the HICBC would otherwise be payable by the claimant.

The LITRG says that it understands that it is not possible to retrospectively change the name of the person claiming Child Benefit to avoid the HICBC, but it is possible to end the claim for Child Benefit and for the former partner to make a new claim. However, this could mean that the former partner (or any new partner they may have) may be liable to the HICBC themselves if they earn above the HICBC threshold.

If taxpayers are found to be liable for the HICBC, but have failed to notify HMRC, they may be charged penalties – although, if they have a reasonable excuse for the failure then the penalties can be appealed.

Claiming child benefit can also impact a person’s entitlement to a State Pension, as it attracts National Insurance credits. While these can be transferred to the other parent or carer, deadlines and conditions apply.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk

Abolishing the lifetime allowance from 6 April 2024, what we know so far

Since 6 April 2023 no lifetime allowance (LTA) charges apply. All other aspects of the LTA framework have remained in place. However, where there is an excess, either a nil charge applies or the excess is subject to income tax at the individual’s marginal rates.

HMRC are now working on trying to deliver the more complex task of abolishing the LTA altogether from 6 April 2024.

The removal is complicated by the limits on tax-free cash and other tax-free lump sum payments, such as death benefits for those who die under the age of 75. The tax-free element of these payments are currently limited and calculated by reference to the individual’s available LTA. If the LTA is abolished, something else needs to be introduced to replace it.  

In July 2023, HMRC issued a policy paper, some draft legislation and Pension Schemes Newsletter 152 all covering the proposed amendments and their progress to date. Together, they give a good idea of how the process may work but there are still several key issues to resolve and further clarity is required.

Limits on tax-free lump sums

The plan is to introduce two limits on pension payments that can be made free of tax:

  • An overall limit of lump sums and lump sum death benefits of £1,073,100.
  • A tax-free cash limit of £268,275. This will count towards the overall limit above and will include the tax-free element of uncrystallised funds pension lump sums.

Anything above these limits will be paid subject to income tax at the member or beneficiary’s marginal rates. 

Where LTA protections apply, these will increase the limits in the same way as they do currently. 

Valuations

At high level, the limits are probably what most people expected. However, it is not clear how any previous tax-free cash payments will be valued and accounted for. The policy statement says that HMRC’s intention is not to change the approach that schemes currently take to valuing benefits. However, as the benefits have all previously been calculated by reference to the LTA, it is not clear how schemes will operate the new rules. 

The limit will also include small pots, winding up lump sums and trivial commutation payments which seems an unnecessary complication and one area that HMRC may review.

Hopefully, the valuation issues can be clarified but it is going to be difficult to achieve and implement any changes by 6 April 2024.

Death benefits

The bigger issues appear to be around the potential change in death benefits. Whilst there is nothing in the draft legislation, the policy paper states that death benefits currently paid in the form of income “will no longer be excluded from marginal rate income tax under ITEPA, with effect from 6 April 2024”. Whilst some may have expected the tax-free amount to be limited to £1,073,100, it will come as a shock to many that potentially all death benefits paid as income will now become taxable. The change doesn’t seem to match the policy intention and may well be a mistake. 

Another change in relation to death benefits relates to crystallised funds lump sum death benefits. Currently, these are not tested against the LTA and, so, any crystallised funds paid as a lump sum would be free of tax if the member dies under the age of 75. The proposed changes (if enacted) would mean that all lump sum death benefits will be tested against the £1,073,100 lump sum limit and any excess will be subject to income tax. The logic of this change is that the crystallised funds will not have previously been tested once the LTA is removed.  

Summary

In the current tax year, we still have the LTA framework in place and no LTA charges apply. It is not a perfect situation but is a system that works, one that schemes can implement and it meets the overall policy objective. It was always going to be a much more difficult task to remove the LTA altogether. We are now only seven months away from the next tax year and it may be better to delay the removal of the LTA rather than introduce new rules that are both difficult to administer and introduce new forms of unexpected taxation.    

We will provide further updates as and when we get more clarity.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk

Intestacy threshold increase

How the intestacy fixed sum for surviving spouses and civil partners in England and Wales has been belatedly increased to £322,000.

In July, the Government passed a statutory instrument (SI 2023/758) which increased the fixed sum for surviving spouses and civil partners payable under the intestacy regime in England and Wales. The sum increased from £270,000 to £322,000 with effect from 26 July 2023, a 19.3% increase.

This is the net sum that a surviving spouse or civil partner is entitled to receive if a person dies intestate leaving “issue”. Generally speaking, the term “issue” is used instead of “children”, but “issue” has a wider meaning and includes the lineal descendants, i.e. children, grandchildren, etc.

The change seems to have flown under many people’s radars, not least because the Ministry of Justice (MoJ) chose not to issue any press release. Dig a little and an interesting story emerges which explains – but does not justify – the MoJ’s reticence:

  • Schedule 1A of the Administration of Estates Act 1925 requires the level of the fixed sum to be increased in line with the rise in the CPI:
  • every five years (as last happened in February 2020); or, if earlier,
  • when the CPI has risen by over 15% since the previous increase.
  • The 2020 increase was based on November 2019 CPI and the 15% threshold was triggered by the October 2022 CPI, which was published on 16 November.
  • Paragraph 4 of Schedule 1A says the Lord Chancellor must make an increase Order to raise the fixed amount within 21 days of the 15% threshold being crossed.
  • However, the relevant Order was not set before parliament until 5 July 2023, 231 days after the CPI was announced.
  • It appears that the £322,000 figure was based on the March 2023 CPI, issued on 19 April. The latest CPI (for June) would have yielded a figure £6,000 higher.
  • The Explanatory Memorandum to SI 2023/758 gives no clue to the seven-month delay, merely referencing the 15% threshold as a reason for its issue.
  • The cross-party House of Lords Secondary Legislation Scrutiny Committee picked up the MoJ’s ‘inexcusable error in timing of the Order’ and the ‘deficient Explanatory Memorandum’ in its recent report on the 2022/23 legislative session. It noted that the ‘MoJ has breached the law requiring it to increase the fixed net sum within the 21-day timeframe’. This may explain the absence of any MoJ press release…

The overdue increase in the intestacy fixed sum serves as another reminder of the impact of the freeze of the nil rate band, something else the Government would probably not wish to highlight. Had the nil rate band been index-linked since its April 2009 freeze began, it would now be around £475,000.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk

Cold call ban on all financial products – new consultation

As announced in May 2023, the Government will extend the pensions cold calling ban to cover cold calling for all consumer financial services and products. Please see our earlier Bulletin.

It has now published a consultation paper seeking views on the design and scope of the ban on cold calling for consumer financial services and products, including a call for evidence on the impacts of the proposed ban. This consultation closes at 9:30am on 27 September 2023.

Under the Financial Guidance and Claims Act 2018, cold calls are already banned from personal injury firms and pension providers (unless the consumer has explicitly agreed to be contacted).

Cold calling is defined by the Government as involving individuals or organisations making unsolicited calls to consumers to market a service or product. In some cases, these calls are made by direct marketing companies in breach of relevant privacy regulations, but in other cases the products and services being marketed do not exist and the call is fraudulent.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk

Tougher consequences for promoters of tax avoidance

Summary of responses to the consultation on tougher consequences for promoters of tax avoidance.

HMRC has published a summary of responses to its consultation entitled, “Tougher Consequences for promoters of tax avoidance”.

The consultation ran from 27 April 2023 to 22 June 2023 following which HMRC received 19 written responses from representative bodies, professional advisers and individuals, and met with eight representative bodies as part of the consultation.

Having considered these responses, HMRC has published draft legislation and accompanying explanatory notes.

The consultation on the draft legislation will run from 18 July to 12 September 2023.

It sets out proposals for a new criminal offence for promoters of tax avoidance schemes who fail to comply with HMRC’s notice to stop promoting an avoidance scheme and a proposal to expedite the disqualification of directors who promote tax avoidance.

The Government would like views from members of the public, representative bodies, advisers and promoters, as well as businesses and individuals who may have received marketing material, taken advice about, or used arrangements, which seek to avoid tax.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk

June’s Government borrowing figures

June’s monthly Government borrowing figures. They included £7bn of downwards revisions which brought year to date borrowing below the Office for Budget Responsibility (OBR)’s projections. However, despite the revisions, total debt for June 2023 is above the 100% of GDP threshold.

On Friday, the Office for National Statistics (ONS) published the monthly public sector borrowing data for June 2023. Like the inflation numbers issued on the Wednesday, the borrowing figures were better than had been expected:

  • The public sector net deficit ex banks (PSNB ex) in June 2023 is estimated to have been £18.5bn, meaning it was:
  • The third highest June borrowing since monthly records began in 1993;
  • £0.4bn less than a year ago;
  • £0.1bn greater than in June 2021;
  • £13.84bn less than in June 2020;
  • £2.6bn below the OBR monthly profile projection; and
  • £3.5bn below the Reuters economists’ median forecast.
  • The latest estimate of total borrowing for the 2022/23 was revised down by £2.1bn to £132.1bn.
  • Overall public sector net debt excluding banks (PSND ex) was £2,596.2bn, equivalent to 100.8% of GDP (up 0.9%). Last month’s initial May figure, which just crossed the 100% threshold, was revised down to 99.9% due to a £6.3bn increase in the GDP estimate outpacing a £0.5bn rise in the debt estimate.

    In June 2022, debt was 97.3% of GDP and £171.2bn less in cash terms. When the Prime Minister made reducing the debt/GDP ratio one of his five pledges in early January 2023, the then latest figure (for November 2022) was also 97.3%.
  • At £12.5bn, the June 2023 interest payments were £3.7bn higher than May’s figure, but £7.5bn less than a year ago. The interest bill was £1.5bn below the OBR forecast, although it still ranked as the third highest payable in any single month on record.

    Total interest three months into 2023/24 amounts to £29.8bn, about 1.2% of GDP. Given the UK saw only 0.2% growth in the year to March 2023, that 1.2% serves as a reminder of how difficult it will be to push down the debt/GDP ratio. As the Institute for Fiscal Studies recently pointed out, the interest burden implies that if it is to stand any chance of cutting the debt/GDP ratio, the Government will need to run a large primary budget surplus, i.e. spend significantly less on everything excluding interest payments than its raises in revenue.
  • Bank of England holdings of gilts (at redemption value) fell by £7.0bn from April to £695.5bn. The gap between the reserves the Bank created to purchase the gilts under QE and their redemption value narrowed by £0.8bn to £107.7bn (counted as Government debt, as the Treasury indemnified the Bank against losses).

The OBR commentary made the following comments:

  • Borrowing in the first three months of 2023/24 totalled £54.4bn, £12.2bn above the same period last year but £7.5bn below the OBR’s monthly profile based on its March forecast. This downside surprise is more than explained by higher central Government receipts (£7.7bn above profile) thanks to surpluses across the three major taxes – onshore corporation tax, VAT, and PAYE income tax and national insurance (NICs) – alongside lower borrowing by local authorities.
  • Central Government spending at £4.5bn above profile provided a partial offset to the increased tax receipts. Part of this was attributable to the non-consolidated element of the NHS pay settlement.
  • HMRC cash receipts were £4.7bn (8.5%) above the OBR profile in June and were up £3.8bn on last June. This strength is explained by:
  • Onshore corporation tax cash receipts were £3.1bn (34.9%) above profile and £3.7bn (45.3%) up on last year.
  • Cash VAT receipts £1.2bn (15.0%) above profile and £4.2bn (11.4% per cent) higher than the OBR profile for the first three months of the year.
  • PAYE income tax and NICs cash receipts were £0.7bn (2.2%) above profile.

Comment

A second piece of relatively good news for the Chancellor will be welcome relief. However, scope for a tax giveaway alongside the Autumn Statement continues to look minimal.

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk