The latest public sector finance data highlights how much the Government depends on tax increases to stabilise the nation’s finances. Provisional figures for October 2024 reveal a growing fiscal deficit, emphasising the challenges ahead for the Chancellor and her Autumn Budget measures.

October deficit climbs to second-highest level on record

The Office for National Statistics (ONS) reported a £17.4 billion shortfall for October 2024, marking the second-highest October deficit since monthly reporting began in 1997. This was £8.7bn higher than the month’s budgeted deficit and £1.6bn more than October 2023.

The cumulative deficit for the first seven months of the financial year reached £97bn, exceeding the budgeted figure by £15bn and outpacing last year’s equivalent period by £1bn. This represents the third-largest year-to-date shortfall for the period since records began.

Net borrowing to fund the deficit pushed public sector net debt to £2,792bn by the end of October, equivalent to 97.5% of GDP. This marks a 0.9 percentage point increase from 96.6% in March 2024, reflecting continued fiscal pressure.

Year-to-date trends: Spending and receipts

Between April and October 2024, taxes and other receipts totalled £630bn, a 4% increase compared to the same period in 2023. This growth was driven by higher income tax and corporation tax revenues, offsetting employee national insurance rate cuts.

Public spending reached £694bn, a 3% rise year-on-year, despite the expiration of energy support subsidies that inflated costs in the previous year. Key drivers included a 4% increase in public services and welfare spending. Subsidies decreased by 15%, while debt interest costs fell by 4%, reflecting lower inflation-linked debt indexation.

Net investment for the period amounted to £33bn, comprising £53bn in capital expenditure and £20bn in capital grants and other items, partially offset by £40bn in depreciation.

The current deficit, which excludes investment spending, stood at £64bn –

a 7% improvement compared to the prior year. However, achieving the Chancellor’s new fiscal target of a current budget surplus remains years away.

Revised projections and long-term outlook

The Autumn Budget revised the deficit projection for the year ending March 2025 to £127bn – £40bn higher than initially budgeted. This includes £22bn in unbudgeted expenditure inherited by the new Government and an additional £16bn in debt interest.

The Chancellor’s fiscal strategy hinges on tax rises introduced in the Autumn Budget, which will take effect in April 2025. These measures aim to close the budgetary gap, even as other initiatives, such as planning reform and industrial strategy, remain in the early stages.

Public sector net liabilities, calculated at £2,394bn, incorporate financial assets worth £1,071bn and gross debt of £3,127bn, adjusted for £335bn in liquid assets. Meanwhile, public sector net worth stood at -£763bn as of September 2024, factoring in £1,631bn in non-financial assets.

Notes of caution

The ONS cautions that its estimates are subject to revisions as more data becomes available, particularly from local Governments, whose figures are updated quarterly. The latest adjustments reduced the reported deficit for the first six months of the financial year by £0.3bn and increased net debt estimates by £0.8bn.

Additionally, updated nominal GDP figures reduced the public sector debt-to-GDP ratio for September 2024 by 1.4 percentage points to 97.1%. This follows a 1.2 percentage point reduction in the August ratio, further emphasising the fluid nature of public finance reporting.

These figures underline the challenges faced by the Government in balancing the books. The reliance on tax increases to stabilise finances reflects the severity of the fiscal situation, with October’s deficit and year-to-date borrowing showing little room for fiscal manoeuvre in the months ahead.

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