How much will Covid cost the UK

How much will coronavirus cost the UK?

We won’t know how big the final bill will be until after the crisis is over. But the government will certainly have to borrow enormous amounts of money. According to the Office for Budget Responsibility, which keeps tabs on government spending, the government would have to borrow £372bn for the current financial year, (April 2020 to April 2021). To put it into context: before the crisis, the government was expecting to borrow about £55bn for the whole financial year, but it has already borrowed 208.5bn so far this year.

Can the UK afford all this debt?

In recent years, the government has been able to borrow easily at very low interest rates, which makes that debt more affordable. There is a limit to how much the government can borrow, before interest payments become so great it can’t afford them. No-one knows quite where that limit is. Even if the economy bounces straight back, there will be more debt, and so more interest to pay.

How will the money be raised?

At first the government will raise money by borrowing from investors. They could be individuals, companies, pension funds, or foreign governments who lend the money to the UK government by buying bonds. A bond is a promise to pay the money back in the future, and pay interest in the meantime. The Bank of England will buy some of those bonds, which will make raising the money easier.

Will I have to pay more tax?

The deficit leaves the government with a choice: increase borrowing, raise taxes, or cut spending. Raising taxes would be politically awkward, because the Conservative 2019 manifesto promised not to raise the three biggest taxes. Increasing taxes means people have less money to spend, which would slow the economy down.

So how will this affect my life?

If taxes go up, people will soon realise they have less money to spend. Likewise, people would notice if lower public spending resulted in worse public services.