The government’s response to the coronavirus crisis will cost taxpayers £123.2bn, according to an updated estimate from the Office for Budget Responsibility.
That is up from a previous estimate of £103.7bn – with more than half of the increase due to the rising cost of the government’s scheme to pay wages for temporarily laid off workers.
The latest figure takes the overall level of spending close to the annual budget of NHS England – though some of the coronavirus spending is itself accounted for by health service costs.
It means, according to the OBR, that government borrowing is now on course to climb to more than £298bn for the current 2020/21 fiscal year – up from £273bn when previously estimated a month ago.
In March, before the lockdown, it had estimated borrowing of £55bn.
The sharp rise in borrowing is accounted for by lower tax revenues – as the locked down economy shrinks sharply – as well as higher spending.
The latest expected total would leave debt at 95.8% of GDP.
The OBR’s figures starkly illustrate the increasing burden of the crisis on the Treasury.
By comparison, the NHS England budget for 2019/20 was just under £121bn and for the current fiscal year – prior to the lockdown being announced – was set at £127bn.
Much of the extra cost laid out in the latest OBR report is the result of the government’s decision to extend the furlough scheme, designed to save stricken companies from having to sack workers by paying most of their wages.
Rishi Sunak announced earlier this week that the scheme, initially set up to run until the end of June, would continue to pay 80% of salaries up to £2,500 for a further month.
After that, the scheme will run for a three months to the end of October, but with employers expected to begin footing some of the bill.
The extension means that the OBR – the government’s fiscal watchdog – now estimates the net cost of the scheme at £50bn, up from £39bn.
But that figure only takes into account the cost of furloughing until the end of July – as the watchdog said there was “insufficient detail” for it to say how much the scheme would cost after that.
The OBR report also for the first time estimates the cost of a series of government-backed loan schemes to support businesses.
It pencils in a figure of £5bn as the sum of lending that the Treasury may have to write off in 2020/21 as a result of the initiatives.
The overall taxpayer bill also includes £15bn on extra public services spending – taking in more money for health services, local authorities, vulnerable individuals, subsidising railways, and money for devolved administrations.
On the impact of the coronavirus on economic growth, the OBR stuck to its scenario that GDP could shrink by 35% in the current second quarter before partly bouncing back in the following three months.
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