Public spending during the Covid-19 pandemic

The Covid-19 pandemic has resulted in very high levels of public spending. Current estimates of the total cost of the measures announced so far range from about £340 to £370 billion. This is the equivalent of over £5,000 per person in the UK.

_{Source: National Audit Office, Office for Budget Responsibility, International Monetary Fund (see section 1.1 of the full briefing for details). Calculated using UK population estimate from ONS, Population estimates for the UK, England and Wales, Scotland and Northern Ireland: mid-2020, 25 June 2021}

Official figures show that spending in 2020/21 was about £167 billion higher than had been planned before the pandemic for that year.

Most of this extra money was spent on public services (such as the NHS), support for businesses, and support for individuals. Some of the largest schemes include the Coronavirus Job Retention Scheme (CJRS, sometimes called the furlough scheme) and NHS Test and Trace.

The departments responsible for the most extra spending were HMRC, the Department for Health and Social Care, and the Department for Business, Energy and Industrial Strategy.

All public spending is eventually paid for by taxes and other government income, but the level of these receipts fell during the pandemic (which is common in recessions). The Government accounted for this shortfall by increasing borrowing to £298 billion in 2020/21. As the cost of borrowing is currently at a historic low, this doesn’t pose an immediate problem, but does leave the public finances vulnerable to increases in these costs.

The huge amounts of extra spending during the pandemic leave the Chancellor with difficult choices as we approach the next Spending Review on 27 October 2021.

If the costs of the Covid-19 pandemic continue for longer than expected, this will leave little room for other budgets to be increased unless either taxes or borrowing also rise. However, if the economy performs better than expected, there could be more room to manoeuvre.