The Office for National Statistics (ONS) has published its latest paper on how the relationship between UK public sector monthly income and expenditure leads to changes in deficit and debt for the financial year ending 31 March 2021. The figures are subject to adjustment, but show the stark reality of the effect of Covid-19 on the UK economy and the extent of government support:
- Public sector net borrowing (excluding public sector banks) in the financial year ending (FYE) March 2021 is estimated to have been £303.1 billion, £246.1 billion more than in the year to March 2020 and the highest nominal public sector borrowing in any financial year since records began in 1947.
- Expressed as a ratio of gross domestic product (GDP), public sector net borrowing (excluding public sector banks) in the FYE March 2021 was 14.5%, the highest such ratio since the end of World War Two, when in FYE March 1946 it was 15.2%.
- Public sector net borrowing (excluding public sector banks) in the FYE March 2021 is estimated to have been £24.3 billion less than the £327.4 billion expected by the Office for Budget Responsibility in their Economic and Fiscal outlook – March 2021 on a like for like basis.
- Central government tax receipts are estimated to have been £523.6 billion in the FYE March 2021 (on a national accounts basis), £34.2 billion lower than in the FYE March 2020, with notable falls in taxes on production such as Value Added Tax (VAT), Business Rates and Fuel Duty.
How will this affect your business?
We saw in the last Budget the steps the government is taking to support the recovery with new incentives for business investment, and help for businesses to attract the capital, ideas and talent needed to grow.
Once economic recovery is durably underway, the recent Budget stated that the public finances must be returned to a sustainable path and sets out the size of the challenge and steps to deliver more sustainable public finances. So, in March we saw Chancellor Rishi Sunak freeze income tax thresholds and announce an increase in Corporation tax rates from 2023.
The government has chosen a fine line between raising taxes to start paying down the massive government borrowings, but at the same time stimulate economic recovery and save jobs.
Most businesses will be focussing short term on their recovery and, in the medium term, on being resilient, improving profitability and growing turnover.
If taxes do rise to fund government spending, we recommend all businesses should map out a range of scenarios with “what if” analysis to understand their available future strategies for success.
For example, here is a smaller business’ “what if” scenario planning results:
Please talk to us about scenario planning – we have the tools to help you prepare for the future and set realistic and achievable targets. Contact your usual Beavis Morgan partner or email firstname.lastname@example.org.