ICAEW Better Government Series: The debt of nations

Martin Wheatcroft, author of Simply UK Government Finances, has co-authored  the ICAEW Better Government Series: ‘The debt of nations’ policy insight published today. It shines a light into public debt around the world.

Ross Campbell, Director, Public Sector at ICAEW says:

“I’m very pleased to present our most recent addition to the Better Government Series: ‘The debt of nations’.

Since 2001 there has been a dramatic increase in borrowing by governments to nearly £30 trillion, a tripling in the level of public debt. Borrowing can be a valuable tool to finance capital investment, e.g. infrastructure, which creates economic and social benefits. However, increasingly governments in developed countries are borrowing to pay day to day running costs.

With the era of ultra-low interest rates coming to an end and the reversal of quantitative easing, there are real questions about whether the cost of public debt will be sustainable. Traditionally governments used inflation as a tool to reduce debt relative to the size of the economy. This policy choice comes at a cost however, eroding the value of saving and investments in the domestic currency and may be harder to implement in an era where central banks are mandated to keep inflation low.

Our report explores these issues and provides analysis and reflections on borrowing by government.

ICAEW believes we need a better public understanding of how public debt is measured and managed to know if borrowing by government is truly under control.”

Click here to read the report.

ICAEW chart of the week – public debt

Ross Campbell, Director of Public Sector for ICAEW, writes:

“This week’s chart is on the subject of debt. Public debt.

This is the subject of a forthcoming report in the ICAEW’s Better Government Series, which examines the level of public debt around the world. It is not a pretty picture, with general government net debt (the most widely used measure) tripling since 2001 to reach almost £30tn this year.

According to data provided by the IMF, there are 76 indebted countries that together owe £42tn in gross debt, which nets to £29.4tn once cash and liquid financial assets are taken into account. £26.3tn or 90% of this is owed by just 12 countries – the US, Japan, Italy, France, the UK, Germany, Spain, Brazil, Mexico, Belgium, Canada and the Netherlands.

Proportionately, the UK has borrowed the most of the major developed countries, with an average annual increase over the last 17 years of 9.9%, followed by the US with 9.3%. This compares with more modest increases of 2.3% a year on average for Germany and 0.4% for Canada.

A decade after the corporate debt crisis, public debt is at an all-time high and continues to rise. The next debt crisis may well be one of public debt.

Do watch out for our report – it makes for a fascinating (and sobering) read.”

To comment on the ICAEW chart of the week, visit the ICAEW Talk Accountancy blog by clicking here.

ICAEW chart of the week – a trade war looms?

Ross Campbell, Director for Public Sector at ICAEW writes:

“With international relations a little fractious currently and talk of a trade war in the press, this week’s chart look at what is at stake in terms of the scale of global trade.

Exports are certainly important to the major trading countries, including the US, the EU, China and Japan, which together make up just over 70% of the global economy. As a proportion of the economic activity (compared to projected 2018 GDP) exports range from 14% for the USA to 20% for China. 

The three largest economies each export in excess of £2tn of goods and services a year. While as a percentage of economic activity this may not seem that much,   it is important to realise that the public sector makes up from 40% to 50% of the economic activity of developed economies, so exports represent a much larger share of private sector activity.  

Furthermore, disruption to the complex supply chains that are so important to global trade could have a multiplier effect on economic activity, and not in a good way.

Of course, not all of the noise made by politicians turns into anything real. Let’s hope the war of words between the US and China doesn’t become an actual trade war, as a world of strong economies needs more, not less, international trade to thrive.”

To comment on the ICAEW chart of the week, visit the ICAEW Talk Accountancy blog by clicking here.

ICAEW chart of the week – income tax distribution

Ross Campbell, Director for Public Sector at ICAEW, writes:

“Our chart this week looks where the government gets its money, or at least the element that comes in in the form of income tax, which is expected to generate around £173bn in 2017-18.

It is important to note that income tax constitutes only 24% of total government income, so this chart does not represent the full picture of how much is contributed by different groups.

The highest earning 10% (5% of the total population) contribute £102bn, almost 60% of total income tax, while the top 1% of earners pay £48bn (28%).

As a ‘progressive’ tax, the average tax rate paid by each group goes up with income, increasing from 10% for the bottom half of income tax payers (earning less than £25k).

In comparison other taxes such as national insurance, council tax and VAT are considered “regressive”, with poorer households paying a much greater proportion of their earnings on these taxes.

Interestingly, despite the impression given by a top marginal rate of 45%, the overall amount collected by income tax is just 16% of the total personal income of £1,050bn declared on tax returns and PAYE submissions.”

To comment on the ICAEW chart of the week, visit the ICAEW Talk Accountancy blog by clicking here.

ICAEW chart of the week – changing taxes

Ross Campbell, Director for Public Sector at ICAEW, writes:

“Following last week’s chart on the changing profile of public spending, our chart this week shows how taxes have changed over the past sixty years.

Despite income tax rates being lower, the overall share from taxes on income has actually increased. Although income tax and corporation tax have declined as a proportion of total tax, the increase in national insurance (another form of income tax) more than makes up the difference.  

However, the most dramatic shift has been in customs duties. These are now less than 1% of total tax receipts, compared with the 18% they generated back in the day. At the same time, local taxation in the form of business rates and council tax (which replaced domestic property rates) has declined to less than a tenth of the total.

The revenues from these taxes have largely been replaced by VAT, now a fifth of the total, together with a plethora of new taxes, including insurance premium tax, environmental levies, air passenger duty and the bank levy to name just a few.

With tax receipts (excluding other income) in 2018-19 equivalent to 34% of GDP, compared to 31% in 1988-89 and 30% in 1958-59, the shift over time demonstrates a key principle of taxation: if one tax doesn’t get you, another one will.”

To comment on the ICAEW chart of the week, visit the ICAEW Talk Accountancy blog by clicking here.

ICAEW chart of the week –

Ross Campbell, Director for Public Sector at ICAEW, writes:

“With the Spring Statement already drifting into memory, our chart this week, shows how the profile of public spending has changed over the last 60 years. 

It shows how back in 1958-59, the government spent less than a quarter of its budget on welfare (including pensions) and health, but today spending in those areas has increased to around 54% of total spending.

The consequence is that the proportion of the total available to spend on all other public services has decreased significantly, with defence having had the largest reduction over time.

Because we are all living longer, spending has been increasing on pensions, health, and social care in particular. The demographic projections mean that this trend is likely to continue over the next 30 years as we continue to age as a society.

If the past is any guide to the future, the trend of successive governments choosing to prioritise health, welfare and pensions over other spending is likely to continue. So don’t expect the pressure on public spending to let up anytime soon…”

To comment on the ICAEW chart of the week, visit the ICAEW Talk Accountancy blog by clicking here.

ICAEW chart of the week – Autumn Budget 2017 tax measures

Ross Campbell, Director for Public Sector at ICAEW writes:

Today’s ICAEW chart of the week looks at the overall impact of last week’s budget on the tax system.  Usually the first budget after an election is a tax-raising budget – so how did the chancellor do?

There were 34 tax measures set out in the 2017 Autumn Budget ‘Red Book’.  Of these, 21 are expected to increase tax receipts over the next five years (from 2018-19 to 2022-23), while 13 are expected to reduce tax receipts. 

Unusually for a first budget the government’s overall tax receipts are expected to fall rather than rise, however in practice the changes are actually very small in terms of the overall public finances. In the context of government income expected to average £813bn a year, over the next five years, the budget’s tax increases are equivalent to an increase of 0.22% of a year’s receipts, while tax cuts amount to 0.39%.  A net reduction of just 0.17%.

This contrasts with the approximately 2% downward revision to total receipts over the forecast period from poorer economic forecasts.

What is clear is that in terms of financial impact,  the Chancellor largely left the tax system as it is…”

To comment on the ICAEW chart of the week, visit the ICAEW Talk Accountancy blog by clicking here.

ICAEW chart of the week – Autumn Budget 2017

Ross Campbell, Director for Public Sector at ICAEW, writes:

“A slightly delayed Chart of the Week from ICAEW follows from this week’s budget. 

The chart shows how various factors have combined to turn George Osborne’s July 2015 forecast of a £10bn surplus by 2019-20 into a £35bn deficit for Philip Hammond.

In many ways, the change in the forecasts for 2019-20 tells the underlying story of this Budget. The economy was already showing signs of weakness that had already taken away the prospects for a budget surplus, even before the Office for Budget Responsibility revised their figures down by a further £9bn.

The chart also shows how much of the additional spending announced in the Budget has been focused into this particular year, perhaps with a view to providing a small fiscal stimulus in the first year following Brexit?

With the Office for Budget Responsibility concluding that it is unlikely that the government will be able to eliminate the Budget until well into the 2020s, this Budget was always going to be difficult.

And although it is positive that there has been an improvement in the forecast for the deficit in the current financial year, the overall picture going forward is another timely reminder of the importance of investment to improve productivity and economic growth.”

To comment, visit the ICAEW Talk Accountancy Blog by clicking here.

Managing the Public Balance Sheet

ICAEW’s latest report is on managing the public balance sheet. As governments around the world start to adopt accruals accounting, they are gaining a wealth of valuable information about their financial position. 

The aim of this policy insight to offer some thoughts about how that information can be used in policy making and financial management.


For more information, visit the ICAEW website by clicking here.  To read the report itself, download it by clicking here.

ICAEW chart of the week – UK trade with the rest of the world

Ross Campbell, ICAEW Director for Public Sector, writes:

As talks about the EU exit charge and trade deals continue, this week’s ICAEW Chart of the Week is on the topic of international trade.  

The UK ran a substantial £92bn surplus in its trade in services in 2016, with exports of £245bn exceeding imports of £153bn.

However, this was more than offset by a £135bn deficit in its trade in goods, with exports of £302bn more than exceeded by imports of £437bn.  Overall the net trade deficit amounted to £43bn.  This looks like a large number, but at 2% of GDP it should be seen in the context of the UK economy of over £2 trillion. 

What the chart does illustrate is the significance of the UK’s trading relationship with the rest of Europe.  EU and EFTA countries take 48% of the UK’s exports and provide 58% of our imports. After the EU and EFTA, the UK’s three largest trading partners were the USA, China and Japan.

We’ll cover how the trade deficits forms part of the overall current account deficit in a future chart.  But our main point is that international trade is a key part of the economy and the UK currently buys more from overseas than it sells. 

Given our history as a trading nation and the need in our current circumstances to forge new trading relationships, perhaps its time for a bit more support for our export drive?”

To comment, visit the ICAEW Talk Accountancy blog.