The cost of Covid-19

This report from UK think tank the Institute for Government looks at the impact of coronavirus on the UK’s public finances.

As the chancellor prepares to set out his Winter Economy Plan to parliament, this report estimates that Covid-19 is already likely to cost the UK government £317bn – in increased public borrowing – in 2020/21 alone. Any new measures announced by the chancellor will help businesses and households but increase this cost to the public purse. The report analyses the huge and wide-ranging effects of Covid-19. The pandemic and restrictions on everyday life look set to continue, raising the potential for further economic damage, additional spending on health and social care and more support for households. So the £317bn total announced to date seems unlikely to be the final total, with the hit to government spending and revenues likely to spill over into subsequent years. The £317bn total is made up of: £192bn spent on government support including the furlough scheme, extra spending on public services and help for business Higher welfare spending and a drop in tax revenue pushing planned borrowing up by £125bn This total includes: Government departments being allocated an extra 19% (or £76.3bn) more than their original budgets this year to meet the demands of Covid-19 The day-to-day costs of running government departments rising by £600m Increased spending on advertising: of the £66m spent by the Cabinet Office on advertising in June and July, 92%, was on Covid messaging – vastly more than was spent on 2019’s ‘Get Ready for Brexit’ campaign. The government has absorbed nearly two-thirds (64.5%) of Covid’s hit to the private sector by choosing to prop up the income of households and businesses during the pandemic through measures like grants, wage subsidies and increases in benefits.


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