This note provides a short overview of the Contingencies Fund and the public spending measures being proposed to deal with the economic impact of the coronavirus outbreak.

This information is correct at the time of publication, 24 March 2020. This is a fast-moving crisis, so please be aware that information may have changed since this time.

In the Business Statement on 23 March 2020, Leader of the House Jacob Rees-Mogg announced that all stages of the Contingencies Fund Bill would be debated on Tuesday 24 March, and that this would provide the Government with £260 billion on account. Due to the large amount of money and the very short timescale, this is clearly a Bill aimed at providing the Government with enough money to fund the support packages that it has announced as part of its efforts to combat the coronavirus outbreak.

The Contingencies Fund

In general, Government spending must first be authorised by Parliament. This takes place in the twice-yearly Estimates process, in which Government departments request that Parliament authorise a specific sum of money for their use. The Estimate also lists the purposes that the money is to be used for, and allows departments to spend a proportion of the previous year’s total in advance of Parliamentary approval (this is known as a Vote on Account). Specific spending can also be authorised by individual Acts of Parliament.

However, it is generally recognised that there are some occasions where money needs to be spent immediately, without Parliament authorising it first. The Contingencies Fund exists for this purpose – HM Treasury can authorise spending from the Fund when money is needed unexpectedly.

There are two mechanisms that control the money paid out from the Contingencies Fund. The first is that all money paid out of the Fund must be paid back into it eventually, and this repayment is authorised by Parliament. The records of what has been spent from the Fund are published each year in the Contingencies Fund account.

The second mechanism is found in the Contingencies Act 1974, which limits the total amount of capital that can be held by the Fund to 2% of the authorised spending of the previous financial year. As total authorised spending for 2018-19 (as specified in the 2018-19 Supplementary Estimates) was £512.9 billion, this means that the Fund cannot currently be any larger than £10.3 billion.

Spending on Covid-19 measures

The Chancellor has already announced some very large amounts of money to help to combat the economic effect of the Covid-19 outbreak:

  • £12 billion of measures announced in the Budget on 11 March, to support public services, individuals and businesses;
  • £330 billion of loan guarantees through two new schemes announced on 17 March, to support businesses. Because these are loan guarantees rather than grants, the full £330 billion may not need to be paid out; however, this was also described as an “initial” amount of money, indicating that there may be more to come;
  • The Coronavirus Job Retention Scheme, which will reimburse businesses with 80% of the salary of any worker furloughed by a company that would otherwise have been laid off (the reimbursements will be limited to £2,500 per worker per month). The total cost of this scheme will depend on the number of workers that are furloughed, but is likely to be significant;
  • Several other measures, such as grants to businesses and business rates holidays (costing around £20 billion), and deferred VAT and Income Tax payments. The Government has also increased the availability and generosity of some parts of the welfare system, at a cost of around £7 billion.

Although we cannot yet put a total figure on the amount of money that this will all cost, it is certainly much higher than total spending was expected to be in the Budget. If the total came to around £260 billion, the amount that this Bill is expected to provide, this would bring total public spending for the 2020-21 financial year to around £1.2 trillion – about 30% higher than originally planned.

Further reading