Coronavirus: how much will it cost in the UK?

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Man in mask walks past empty stores

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Matthew Horwood

The coronavirus has crippled much of the economy and the government has had to spend billions to support workers, businesses and the NHS.

Where will all the money come from?

How much will coronavirus cost in the UK?

It is still very early in the crisis, so it is impossible to say what the final bill will be. It could reach £ 298 billion this year alone (April 2020 to April 2021), according to the Office for Budget Responsibility (OBR), which keeps an eye on public spending.

It’s an absolutely huge sum.

To put it in context: before the crisis, the government expected to borrow around £ 55 billion.

Support programs for public services, businesses and individuals, such as the job retention (leave) program, will cost £ 123 billion, according to estimates from OBR.

The government will also raise fewer taxes than it expected. Workers who are unemployed or on leave pay less income tax, companies pay less tax if their profits are lower, and buyers pay less VAT if they buy less.

The final bill could be even higher. Disclosed Treasury documents have suggested that this year’s figure could reach £ 337 billion.

Even if the pandemic ends quickly, the government will also need to borrow more money in the years to come.

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Legend

Billions of pounds have been spent on the coronavirus, including in temporary hospitals


How will the money be collected?

At first, the government will raise funds by borrowing from investors.

They can be individuals, businesses, pension funds or foreign governments who lend money to the UK government by buying bonds.

A bond is a promise to repay the money in the future and pay interest in the meantime.

The Bank of England will buy some of these bonds, which will facilitate fundraising.

Can the UK afford all this debt?

In recent years, the government has been able to borrow easily at very low interest rates, making this debt more affordable.

There is a limit to the amount the government can borrow before the interest payment becomes so high that it cannot afford. No one knows exactly where this limit is.

Even if the economy rebounds immediately after the foreclosure is lifted, there will be more debt and therefore more interest to pay.

But many commentators fear that the recovery will take much longer than that.

The government will therefore put less money into taxes than it planned and spend more on supporting people and the economy.

This will leave a gap between his spending plans and the money that will pay for them – this is called the deficit.

Do I have to pay more taxes?

The deficit leaves the government with the choice: increase borrowing, raise taxes, or cut spending. In the end, it may well be a mixture of the three – but those decisions have not yet been made.

Some economists argue that all the costs of the crisis could be easily covered by borrowing alone, but many disagree.

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Legend

Chancellor Rishi Sunak faces tough decisions


Raising taxes would be politically embarrassing, as the 2019 Conservative manifesto promised not to raise the three biggest taxes. These are income tax, national insurance and VAT – which together generate more than half of government revenue.

Raising taxes means people have less money to spend, which would slow the economy.

It will also be difficult to reduce spending. There have been big cuts in the past decade, and many of the easy savings have already been made.

Some areas have been protected for a long time, such as health care – but it would be difficult to reduce health care costs after a great pandemic.

State pensions, another major expense, are protected by a system called “triple lock”, which guarantees an increase of at least 2% each year. This was also guaranteed in the manifesto.

The Chancellor could say that the pandemic makes these promises impossible to keep. But difficult choices will certainly have to be made.

So how will it affect my life?

If taxes go up, people will quickly realize that they have less money to spend. Likewise, people would notice if the decline in public spending resulted in a deterioration of public services, such as longer wait times in hospitals or fewer police officers on the streets.

But if doctors and nurses see their wages frozen, or if benefits increase more slowly, those affected will notice.

The government may think that some of its ambitious infrastructure plans, such as road and rail improvements, must be postponed or canceled.

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