Coronavirus: Government faces WW2-sized bill for tackling virus

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The cost of the government’s efforts to combat the coronavirus pandemic has risen to £123.2bn, according to latest estimates from the government’s independent economics forecaster.

The Office for Budget Responsibility’s previous estimate was £103.7bn. The increased cost of the government’s furlough scheme is the main cause.

It now expects annual borrowing to equal 15.2% of the UK economy.

That would be the highest since the 22.1% seen at the end of World War Two.

The extra spending has pushed the deficit identified for 2020-21 in the OBR’s reference scenario, which it says is not a formal forecast, above the 15% in 1945-46, which included VE Day.

Borrowing for this year is calculated to be £298bn, up £26bn on the first attempt to calculate the impact of the pandemic a month ago.

This is mainly because of the extra costs of extending the furlough scheme to the end of July.

Including the extra extension of a modified scheme until October could add an additional £20bn, depending on the as yet unannounced details of the scheme.

Welfare costs

The OBR also reckons that taxpayers could end up footing a big bill for bad bank loans.

Some £5bn in taxpayer cost from unpaid loans to banks is included in this financial year.

An extra £1bn is already earmarked for the cost of welfare, mainly spiralling claims for Universal Credit.

The OBR’s last official forecast at the Budget anticipated annual borrowing by the government of £55bn, rather than £298bn, says BBC economics editor Faisal Islam.

The difference in just two months – the result of the pandemic and shutdowns – is a £127bn hit to the money that government takes in, mainly expected tax revenues, and £119bn in extra spending to support the economy over the year, our editor adds.

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