Coronavirus And The UK Economy

The total cost is estimated to be £103.6 billion, of which is £99.3 billion is in increased government expenditure and £4.3 billion in tax cuts and concessions. The effect on the government finances will be a fiscal deficit of more than 10% of GDP, and the national debt rising from 80% to an eventual 110% of GDP over the next few years.

The government policy interventions will largely be financed by the new Quantitative Easing program announced by the Bank of England of £100 billion, and while this runs the risk of future inflation and undermines the perceived independence of the Bank, these are large concerns for the future.

The poor and the young bear the brunt

When it comes to households there have been noticeable differences between the better-off and the worse-off in society. Modeling work reveals that the low-paid and younger workers have been the most affected since they tend to work in the sectors like hospitality, leisure and retail most impacted by the crisis.

Data shows that the low-paid are still more likely to be furloughed than their higher-paid counterparts. The Resolution Foundation reports that 27% of the lowest fifth in income distribution have been furloughed, while the figure for the top one fifth is only 10%.

Likewise, 8% of the lowest fifth in the income distribution have been made unemployed, while the corresponding figure for the top fifth is 2%. A young versus older worker divide exists, with 30% of 18-24-year-olds furloughed and 10% made unemployed, while the figures for 54-59-year-olds is estimated at 17% and 3% respectively.

The Foundation also reports that one in four lower-income households have increased their use of consumer credit during the pandemic, while the corresponding figure for high-income households is one in eight.

As well as taking the biggest income hit, poorer households have substantially less savings and wealth to see them through the crisis. A typical worker in a shut-down sector of the economy and most at risk of unemployment had average savings of just £1,900, compared to £4,700 for those who have been able to work from home during the crisis.

These averages also disguise the plight of a substantial number of people who have no savings at all and already have quite high debt burdens. Three times as many adults in the top fifth of the income distribution have experienced no income hit as compared to the bottom fifth.

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