The QE era now starts to make withdrawals from the UK Public Finances

by Shaun Richards

This morning we have been updated on the latest figures for the UK public finances and let me start with something rather familiar.

UK PSNB Ex Banking Groups Oct: £13.5B (est £21.5B; prev £20.0B)

Yes those who did the forecasts expected £21.5 billion and got £13.5 billion as we wonder if this was part of their job application to join the Office for Budget Responsibility. Speaking of it there was an rather extraordinary defence of it or perhaps his salary by one of its leaders on Bloomberg last week.

The Office for Budget Responsibility’s David Miles told me earlier that the fiscal watchdog’s forecasts are a bit like a sat nav  Good for telling you the direction you’re going in, “always wrong” on the specifics — things always change.

I do not know about your experience of sat navs but when I put in Battersea they bring me home rather than taking me to Brighton as the David Miles version would. I can’t see his version catching on. Still it is pretty well paid for someone who is always wrong.

Your fee is determined by the Treasury and paid by the OBR, and will be £5,356.64 per
month, less statutory deductions as mentioned below

That is for only half the week and another 20% goes into his pension fund.


Whilst better than expected by many the numbers remain quite large.

In October 2022, the public sector spent more than it received in taxes and other income, requiring it to borrow (public sector net borrowing, PSNB ex) £13.5 billion, which was £4.4 billion more than in October 2021 and the fourth highest October borrowing since monthly records began in 1993.

This time around there was something going on with receipts and something I have warned about.

Central government receipts in October 2022 were estimated to have been £70.2 billion, which was £0.7 billion less than in October 2021. Of these receipts, tax revenue increased by £2.5 billion to £51.7 billion.

So other receipts were struggling which sent my eyes straight to this.

Since January 2013, HM Treasury has received regular payments from the Bank of England Asset Purchase Facility Fund (APF) under the indemnity agreement. These payments have now stopped. As a result, central government interest and dividend receipts in October 2022 were estimated to be £1.1 billion, a reduction of £4.3 billion compared with October 2021.

This is an issue that our establishment have long turned their heads away from but as the Bank of England pays Bank Rate on its reserves that has outrun the coupons from its holdings. Remember they were very low during the pandemic period as it drove yields to record lows. Probably does not feel quite so bright now and it will be worse from now on as the 0.75% Bank Rate rise in November has yet to impact. The government gained about £120 billion from QE via transfers but the tide which was coming in is now going out.

Central government spent a fair bit more as well.

Central government bodies spent £76.8 billion on current (or day-to-day) expenditure in October 2022, which was £6.5 billion more than in October 2021.

As so often these days we see that energy was a big factor here as the Energy Bills Support Scheme began.

This month sees the first tranche of EBSS payments, with £1.9 billion of central government expenditure recorded as a current transfer from government to households,

As it stands we do not have an estimate for the October cost for help to businesses/

Payments for the EBRS for businesses will also be recorded as subsidies, but no estimate is yet available for the October 2022 amount.

I cannot see the Energy Price Guarantee ( £2500) being itemised either which is rather a poor show.

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Debt Interest

This is now much higher in terms of an overall trend but as it happens was the same as last year.

In October 2022, the interest payable on central government debt was £6.1 billion; £3.3 billion reflected the impact of the RPI.

The numbers have their quirks as in there is a 3 month lag for inflation and some months have more payments than others. Also much of the inflation indexing is added to the debt rather than actually paid out so the issue gets another later of complexity.

One thing that we do know is that issuing debt has got quite a bit cheaper than it was with the UK fifty year yield now 2.83% as opposed to the over 4.5% it rallied to in the post mini-Budget panic.


You may have thought we have already fully covered that but at the same time as the payments coming into the UK Treasury were fading away it also had to pay out.

This month the Bank of England Asset Purchase Facility Fund (APF) received its first payment from HM Treasury under the indemnity agreement (previous payments were made by the APF to HM Treasury).

This £0.8 billion of central government expenditure has been recorded as a capital transfer to the Bank of England,


This is a complex issue as the activities of the Bank of England have inflated it.

The Bank of England contributed £309.4 billion to public sector net debt at the end of October 2022.

Some of this is the mark to market losses on its QE holdings but the larger amount is its Term Funding Scheme which I do not consider to be debt in the conventional sense. It is backed by another financial asset. So when they mature over the next 2/3 years our public finances will not really be improving. You could put a margin of say £20 billion for any losses but more seems rather a hairshirt.

Standing at £2,150.5 billion at the end of October 2022 (or around 85.2% of GDP), PSND ex BoE was £309.4 billion (or 12.3 percentage points of GDP) less than PSND ex.


We have become used to there being issues with the public finances and I still shake my head in what is supposed to be an IT age that we do not have more precise numbers. Indeed for what is one of the topics du jour ( energy subsidies) we have in some cases no numbers at all. I would be expecting another £2.5 billion for households for October.

Switching to the public finances implications of QE I have to confess I am wondering if that was another reason for the delays and dithering on raising interest-rates? Central banks were keeping their own funding costs as low as possible to further please their government masters. After all so many at the Bank of England come straight out of HM Treasury. If they had taken my advice back in 2013 to shrink the QE portfolio we would be in a better place.

Next up is the government itself which only a couple of months ago was embarking on a fiscal stimulus and now after spinning like  a top now espouses a form of austerity. So you can argue the numbers are good or bad! But one thing that would be bad or the new supposed austerity would be if this was carried out.

Shell will review £25bn of investments in British projects after the chancellor extended the windfall tax on energy companies, its UK chairman has told Sky News.


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