The coronavirus crisis brought havoc to large sectors of the British economy to a crashing standstill. The Government has spent billions on support packages to help businesses, workers, organisations and families through the pandemic. But how has this help been funded and what will it cost you?
How much will the coronavirus crisis cost in total?
According to statistics from the Office for Budget Responsibility (OBR), the Government’s economic policy response to the crisis was estimated to have cost £132.6bn as of June 19.
It is still early on in the crisis and the recovery path, but economists suggest the final cost could be in the region of £300bn or more for the 2020/2021 financial year alone.
Before the crisis, the Government anticipated borrowing for the year to be circa £55bn, but the true figure is likely to be at least five times more.
The Government, in fact, borrowed more than £100bn in the first two months of the financial year alone.
READ MORE: Rishi Sunak to act ‘very quickly’ as workers face coronavirus tax
How will the UK pay back this borrowing?
Many economists fear the recovery period after the lockdown is lifted fully will take longer than expected.
This means the Government will bring in less money through taxes than expected and will have to spend more to support people and the economy.
The gap between the Government’s spending plans and revenue is known as the deficit and this leaves the Government with three options to raise money:
- Increase borrowing
- Raise taxes
- Reduce spending.
Most likely, the Government will use a mixture of all three options to cut the cost of the crisis.
What impact could this have on you?
The Chancellor of the Exchequer Rishi Sunak may have no option but to raise taxes in the autumn to cover the huge amount of state financial assistance during the COVID-19 crisis.
Raising taxation would mean Mr Sunak breaks pledges made in the Conservative manifesto to raise rates on income tax, National Insurance and VAT.
But in order to reduce the mounting deficit, the UK will likely review and potentially alter the following taxes:
- Income tax and National Insurance
- VAT and corporation tax
- Self-employed taxes
- Triple-lock on pensions
- Wealth tax.
If taxes are raised, people will have less money to spend and likely the cost of living will increase leading to even more financial hardships for people.
If spending is reduced, this could lead to worsening public services.
Some areas are protected such as healthcare, but it will likely put healthcare systems under even more pressure.
State Pensions have also been mentioned as another means by which the Government may seek to cut costs.
State Pensions are protected by the triple lock system which guarantees at least a two percent increase each year and by pausing this guarantee, the Government could be spared millions.