LONDON (Reuters) - Britain has pledged over 60 billion pounds ($73.70 billion) in public spending and tax cuts in an attempt to shield its economy from a deep recession caused by the coronavirus outbreak, and the final bill could end up being a lot higher.
Finance minister Rishi Sunak has rushed out a string of emergency measures to support workers’ incomes, offer companies tax breaks and make the welfare system more generous.
The government will also suffer a hit to its tax revenues, meaning this year’s budget deficit could balloon to around 200 billion pounds, a war-time level of around 10% of economic output, according to analysts.
Following is a summary of the measures announced by Sunak.
PAYING WORKERS’ WAGES - 10 BILLION POUNDS
The centrepiece of the plan to shield Britain from the full force of the crisis is a job retention scheme. Public grants will cover 80% of the pay of workers who are temporarily laid-off for up to 2,500 pounds a month each.
The scheme will cover the cost of wages backdated to March 1 and will run for at least three months.
COST: Unknowable at present, but covering around 10% of employees could cost around 10 billion pounds every three months, according to the Institute for Fiscal Studies (IFS), a think-tank.
Charlie Bean, a former BoE deputy governor, said take-up could easily be twice that and the duration twice as long, in which case the costs would rise to 40 billion pounds.
SOCIAL SECURITY AND PENSIONS - 3 BILLION POUNDS
The government followed up its announcement by pledging more public money to cover national insurance and pension contributions for companies that temporarily ask employees not to work. The move could save companies an extra 300 pounds a month for each employee, the finance ministry said.
COST: Based on 10% of workers seeking help for three months, the cost to the public coffers would be about 3 billion pounds.
SELF-EMPLOYED - 10 BILLION POUNDS
People who get most of their income from self-employment with trading profits of up to 50,000 pounds will receive taxable grants of 80% of their average monthly profits over the last three years, also for up to 2,500 pounds per month.
A finance ministry official said up to 3.8 million of 5 million self-employed workers would qualify. The scheme will cover March, April and May. Grants will be paid from mid-June.
COST: Around 10 billion pounds for an initial three months, according to the IFS, and the Resolution Foundation, another think-tank.
BUDGET MEASURES - 12 BILLION POUNDS
At a budget statement on March 11, before the full scale of the coronavirus crisis became apparent, Sunak announced a deferment of tax payments by businesses and self-employed people and a relaxation of sick pay qualification rules.
COST: 12 billion pounds, according to Sunak.
A further 18 billion pounds was earmarked in the budget for previously announced stimulus measures.
TAX CUTS - 20 BILLION POUNDS
On March 17, with the crisis growing, Sunak announced property tax cuts for retail, hospitality and leisure businesses for a year as well as grants and other help.
COST: 20 billion pounds, according to Sunak.
He also launched a 330 billion pound lifeline of loan guarantees which statisticians do not consider as a cost for the government unless the loans are not repaid.
WELFARE CHANGES - 7 BILLION POUNDS
On March 20, when he announced the British state would help pay the workers’ wages, Sunak said Britain would raise its main Universal Credit state-paid benefit by 1,000 pounds a year for the next 12 months.
COST: With other welfare measures, the changes would cost 7 billion pounds of extra welfare support, according to Sunak.
THERE WILL BE A BIG TAX HIT TOO
The IFS says Britain’s budget deficit could hit 175 billion pounds if the economy shrinks by 5% this year, or go above 200 billion pounds if the hit is bigger as some economists fear. That would eclipse the official forecast of 47 billion pounds for this year and would probably mean tax rises in future.
BANK OF ENGLAND JOINS THE FIGHT
In a separate line of attack, the Bank of England has ramped up its bond-buying programme by a record 200 billion pounds, cut interest rates to an all-time low of 0.1% and is working with the government to provide credit to companies.
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Reporting by Andy Bruce; editing by Nick Macfie
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