£407billion

That’s the astonishing pandemic bill, with borrowing to hit record high in peacetime

THE horrifying bill for the Covid crisis was laid bare yesterday at almost half a trillion pounds.

The cost of keeping Britain afloat throughout the pandemic is expected to hit £407billion, Rishi Sunak revealed in his Budget.

Swathes of emergency spending and tax reliefs have sent the national debt spiralling, as the Government is set to borrow £355billion in the current financial year from April 2020 to March 2021 – a record high in peacetime.

By the next election in 2024, the country will still be borrowing £74billion a year.

The annual deficit will cause the national debt to balloon, peaking in the 2023-24 financial year at 109.7 per cent of the size of the economy. At this point, debt will total an eye-watering £2.7trillion.

And Treasury officials will also be concerned by interest payments on that debt, especially if rates begin to rise from their current historic low.

Speaking to the Commons yesterday, Mr Sunak said: ‘While our borrowing costs are affordable right now, interest rates and inflation may not stay low for ever, and just a 1 per cent increase in both would cost us over £25billion.’

As the Chancellor tries to get a grip on the public finances, he is set to impose a wave of tax rises. Corporation tax will increase from its current rate of 19 per cent to 25 per cent by 2023, and millions more people will find themselves dragged into higher income tax brackets as the Treasury freezes those bands.

The country’s tax burden is set to hit its highest level in more than 50 years, according to the Government’s Budget watchdog.

By the 2025-2026 financial year, households and companies will be paying taxes equivalent to 35 per cent of the size of the economy, the Office for Budget Responsibility (OBR) said – the most since Roy Jenkins was chancellor in the late 1960s.

Currently the tax burden is at 34 per cent of economic output, or gross domestic product (GDP). More than half of the rise to 35 per cent would come from companies paying more taxes, as Mr Sunak rolls back on previous plans to keep pushing corporation tax down. The Chancellor said: ‘The damage coronavirus has done to our economy has been acute. Since March, over 700,000 people have lost their jobs. Our economy has shrunk by 10 per cent – the largest fall in over 300 years. Our borrowing is the highest it has been outside of wartime.

‘It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover.’

Currently, it is cheaper for the Government to borrow than at any point in history due to record low interest rates.

The Bank of England’s base rate is at just 0.1 per cent, and the central bank had even been considering making rates negative to boost to the economy.

Through its money-printing programme, known as quantitative easing, the Bank has been a keen buyer of the Government’s debt.

But amid signs that the economy is on the road to recovery, helped along by a rapid vaccine rollout and loosening restrictions, interest rates look set to rise – which would add billions on to the debt bill. The OBR said: ‘All else equal, that would be enough to put underlying debt back on a rising path relative to GDP in every year of the forecast.’

However Richard Hughes, chairman of the OBR, pointed out ‘all else would not be equal’, as any rise in interest rates would probably be prompted by a booming economy.

Treasury mandarins will be hoping that this rise in spending and economic activity helps to increase tax receipts.

Think-tank the National Institute for Economic and Social Research said that any hit from higher interest rates would likely ‘be outweighed by the tax consequences of such a recovery’.

‘The damage has been acute’