The COVID-19 pandemic has heralded the biggest increase in UK borrowing and spending since the second world war, as the government has rushed to fight the virus, prop up the economy, and support jobs.
The Treasury has spent over £280bn ($374bn) on interventions linked to the COVID-19 crisis since March, including additional funding for the NHS and paying the wages of millions of Brits. When indirect spending such as loan guarantees for UK businesses is included the figure is even higher.
The interventions are historic in terms of scale, scope and speed. However despite them, the UK has ended up with the biggest recession of any developed nation as a result of COVID-19.
Here’s a breakdown of the key spending interventions made by the Treasury in 2020 as the COVID-19 crisis struck:
Just over 400 people test positive for COVID-19 in the UK on the day Rishi Sunak delivers his first budget as chancellor. Britain is in the very early stages of the pandemic and the government is resisting calls for a national lockdown, insisting the virus can be managed without one.
As part of his £30bn budget, Sunak announces £12bn of spending to address the virus. Measures include a £1bn tax break for business properties, extra funding for sick pay, and an additional £5bn for the NHS. He announces a new loan programme to support businesses through the crisis. Sunak says the impact of COVID-19 will be “significant” but “temporary”.
Less than a week later the government is forced to go much further as virus cases continue to mount and pressure to enter a full lockdown mounts.
On 16 March, Johnson ordered the public to work from home if possible and avoid pubs, bars, and restaurants. Business groups warn this will have a devastating impact on the sector.
At a joint press conference at Downing Street on 17 March, Sunak and Prime Minister Boris Johnson announce a support package worth over 15% of GDP — equivalent to £330bn. Key measures include government-backed loans for businesses, more cash grants for small firms, and tax breaks. Three month mortgage holidays and a ban on landlords evicting tenants are also announced.
Sunak declares an “economic emergency” alongside the health emergency. He says the government will do “whatever it takes” to support the country through the crisis.
Again, the government is pushed to go further. While the 17 March package is seen as a boost for businesses, critics warn it will not be enough on its own to protect jobs.
The chancellor follows up with the creation of the coronavirus job retention scheme — a groundbreaking furlough programme that will allow businesses to mothball their employees. The state will pay 80% of furloughed staff’s wages. The programme is designed to keep workers attached to their companies to speed an eventual economic bounce back.
Sunak also announces another £6bn in welfare funding and a deferral of VAT for businesses.
On the same day, Boris Johnson orders all pubs, cafes and restaurants to shut indefinitely as the virus continues to spread. Three days later a national lockdown begins. All non-essential businesses are ordered to shut, as well as schools and universities.
With the vast majority of the economy shut, gaps in support quickly start to emerge. The most obvious is a lack of support for Britain’s 5m self-employed.
Sunak announces the self-employed income support scheme to address this issue. The scheme lets self employed people claim a taxable grant worth 80% of their average monthly profits over last three years, up to a maximum of £2,500.
95% of self-employed people will be covered by the programme, Sunak says, but critics will later claim as many as 1.5m people are excluded.
3 April: New government-backed loans for medium-sized businesses
The £330bn in government-backed loans announced in early March covered two schemes: the coronavirus business interruption loan scheme (CBILs), which let businesses borrow up to £5m; and the covid corporate finance facility, which allowed large businesses to raise money by issuing government-backed commercial paper.
Business groups point out there is a “squeezed middle” — firms for which the £5m offered by CBILs isn’t enough to meet their needs but which are too small to issue commercial paper.
The Treasury responds by launching the coronavirus large business interruption loan scheme (CLBILs), which lets companies borrow up to £25m. Two weeks later that figure is raised to £50m. In May, the figure rises to £200m.
WATCH: What is the Bounce Back loan scheme?
13 April: NHS and public services spending rises to £14bn
In March’s budget the chancellor set aside an initial £5bn to support the NHS and public services through the crisis. A month later and it is clear much more will be needed. Spending on frontline services has already risen to £14bn, Sunak says. The money goes towards freeing up bed capacity, acquiring ventilators and testing kits, and buying PPE.
The third sector is left out of the initial patchwork of support for the economy. Charity donations are plummeting. The chancellor announces yet another package of support, this time offering £750m for the charity sector.
Critics say it doesn’t go far enough. The sector faces an income shortfall of over £4bn during a three month lockdown.
17 April: Furlough scheme extended until June
When it was launched, the job retention scheme was due to run until the end of May, in-line with expectations of a short national lockdown to bring the virus under control.
By mid-April is becomes clear that restrictions will be in place for longer. The chancellor announces that the furlough scheme will be extended for a month until the end of June.
Previous loan and grant schemes required businesses to be “viable” — in other words, profitable. Startups and other innovative businesses that survive on investment say this locks them out of support and could do irreparable damage to the UK’s tech sector.
The government launches the Future Fund in response, letting startups borrow up to £5m through a convertible loan note. Grants for research firms are also announced as part of a package for startups said to be worth £1.25bn.
The coronavirus business interruption loan scheme is facing heavy criticism for failing money to businesses that need it quick enough. These loans only carry an 80% government guarantee, meaning banks are still carrying out time consuming risk and credit checks to protect against losses on the remaining 20% of the loan.
The government once again launches a new scheme to address the issue. Taking inspiration from similar programmes in places like Switzerland, the Treasury launches a new 100%-government backed loan programme targeted at the UK’s smallest businesses.
SMEs can borrow up to £50,000 under the Bounce Back Loans scheme. It goes on to be the most popular support programme, with over £40bn lent through the programme to date.
By mid-May, the one month extension to the furlough scheme doesn’t look like enough. Hopes are fading that the UK economy will quickly bounce back once restrictions are eased. Longer term support will likely be needed to support jobs while businesses recover.
The furlough scheme is extended until the end of October, with employers facing rising costs from August onwards.
By this point over 900,000 businesses have furloughed 7.5m staff, costing the taxpayer £10bn.
WATCH: What is the job support scheme?
4 June: £10bn injected into the insurance market
With uncertainty reigning around the globe, insurers are pulling back — particularly in trade credit. This is a product where insurers underwrite credit extended between businesses to facilitating deals and transactions. It is vital for the flow of goods and services.
The government steps in and creates the Trade Credit Reinsurance scheme, which backstops the market with £10bn in government guarantees to ensure the market continues to function smoothly.
24 June: £105m for rough sleepers
The government commits £105m to help rough sleepers off the streets during the pandemic. The Treasury says the funding will help 15,000 people.
Museums, theatres, galleries, cinemas and other arts organisations complain the sector is at risk of collapse without more targeted support.
Culture secretary Oliver Dowden eventually announces a £1.5bn support package for the sector, calling it a “massive investment [that] shows our level of commitment”.
The first peak of the pandemic is passed and the prime minister announces in late May that non-essential shops will be allowed to reopen from mid-June.
The Treasury hopes to now shift the emphasis away from supporting the economy towards helping it bounce back.
Sunak delivers a summer economic update, pledging another £30bn to help support jobs as the UK gradually exits national lockdown.
Key announcements include:
The job retention bonus: Employers who rehire furloughed staff an employ them for a minimum number of hours per month until January 2021 are eligible for a one-off “bonus” of £1,000 per employee.
Eat Out to Help Out: The government announces plans to subsidies meals ate in restaurants by 50% for the month of August to help revive the sector. £500m is budgeted for the programme.
Kickstarter scheme: Fearful that a generation of young people will struggle to enter the jobs market, the Treasury pledges to spend £2bn on six-week work placements for out-of-work 16-to-24 year olds.
Green Home Grants: Homeowners and landlords are eligible to claim grants worth up to £5,000 to fund energy efficient upgrades to their properties. The scheme, worth £2bn, is meant to stimulate economic activity.
Stamp Duty Cut: Another effort to stimulate economic activity is a temporary stamp duty cut, which runs until the end of March 2021.
VAT cut: Finally, the chancellor cuts VAT from 20% to 5% for food, accommodation, and attraction businesses.
Economists warn that the job retention bonus alone may not be enough to prevent a wave of layoffs when the job retention scheme ends in October.
Sunak announces a new programme to replace the furlough scheme — the job support scheme. The new programme will subsidise the wages of workers who return part-time. The support scheme will start in November and run for six months.
Extensions to self-employed grants, tax breaks, and government support loans are also announced. Economists estimate the total package is worth an estimated £15bn, with the job support scheme accounting for £10bn of that.
After a lull over summer, COVID-19 cases are once again rising. The government is keen to avoid a second national shutdown — the economy shrank by around 20% during the first one. Instead, the prime minister is pursuing a policy of local lockdowns to try and contain outbreaks.
Areas affected by local lockdowns complain that workers will have no support once the furlough programme finishes at the end of the month. Staff in industries like hospitality will be unable to return even part time during local lockdowns and will therefore not qualify for the job support scheme.
The chancellor announces a new local furlough programme. Businesses ordered to shut by the government will still be able to furlough staff and the government will pay two thirds of their wages. Tougher local lockdowns are announced days later using a new three tier system.
By this point, the furlough programme has cost the Treasury almost £40bn.
Business owners complain that even those not ordered to shut in local lockdowns are suffering as people in affected areas stay home.
The government announces that “open but struggling” businesses can claim grants worth up to £2,100 ($2,750) a month. The grants for businesses in hospitality, leisure, and accommodation will be backdated to August. The support is said to be worth up to £1bn.
WATCH: UK’s economic recovery has slowed – Sunak
By the end of October it becomes clear that local lockdowns will not be enough to stop the mounting COVID-19 second wave. On October 31, the prime minister announces a second month-long lockdown of England from November 5.
A day later — and a day after the furlough scheme was due to shut — the chancellor announces that the scheme will be extended for a month to coincide with lockdown. The job support scheme is abandoned for now.
The government also announced fresh grants for the self-employed and doubles their generosity, offering 80% of past earnings.
Business groups say a month-long extension of furlough will not be enough to save jobs given the uncertain outlook for the economy.
The chancellor caves into pressure and extends the furlough scheme once again, allowing employers to furlough staff until March 2021. Job retention bonuses, which were due to be paid at the end of January, are scrapped.
The chancellor delivers a 12-month spending review in lieu of a budget. Sunak reveals the government has so far spent £280bn on tackling COVID-19 and its economic effects. He announces another £55bn-worth of spending to address the pandemic in 2021. Key spending pledges include £15bn for the Test and Trace system, £3bn for the NHS, £2bn for PPE, and another £850m for vaccines.
The Office for Budget Responsibility publishes dark forecasts alongside the spending review, showing the UK is on track for its biggest annual slump in GDP since 1709 and warning the government deficit is on track to balloon to almost £400bn — forcing the state to borrow the equivalent of a fifth of the UK economy.
The second lockdown failed to meaningfully curb the second wave of COVID-19, making it likely that restrictions will stretch well into the New Year.
The week before Christmas the Chancellor announces that the furlough scheme will yet again be extended, this time until the end of April. State-backed business loan schemes, which had been due to expire at the end of January, are also extended.
At this point, businesses have borrowed £68bn under state-backed loan schemes. Almost 10m people have been furloughed under the government’s job support scheme at a cost of £46bn.