Let us pretend for a brief moment that debts have to be repaid. And that schemes have to be funded… Who picks up the SARS-CoV-2 tab?
First let us review the SARS-CoV-2 bill accrued by the UK government. I haven’t been able to identify an exact number for the amount that both closing large sectors of the UK economy and subsequent health initiatives (track and trace anyone?) have cost the public purse. I did, however, find a number of estimates that put the cost at £394bn whilst also calculating that the increase in national debt between 1st March 2020 – 1st March 2021 to be £313.1bn. Being a charitable fellow I will use the more conservative figure of £313.1bn to represent the “Covid hole” in the public purse. The numbers are as follows…
The Institute for Government estimated that the Cost of Covid to the UK Government would be £317.4bn up to mid-September 2020.
The Institute for Government then updated this to a figure of £394bn for November 2020. They also provided this handy graphic:
To check this estimate I reviewed the Office of National Statistics UK Public Debt data between the 1st March 2020 to 1st March 2021 (using end of Feb cut-off dates on the charts in Figures 2 and 3) to arrive at the figure of £313.1bn.
A crude calculation of £2,131.2 bn (Feb 21) – £1,784 bn (Feb 20) = £347.2 bn in UK Government borrowing over from start of the first UK lockdown to the latest date in the data series.
It should be noted that the UK government borrowed £34.1 bn in the year before the pandemic – £1,784 bn (Feb 20) – £1,749.9 bn (Feb 19). Therefore, if we attribute a “natural” annual borrowing value of £34.1bn we arrive at a figure of £313.1 bn in additional annual borrowing due to the measures to “control the virus”. Essentially, during the pandemic, the UK government has borrowed in a month what it normally borrows in a year.
Note: I haven’t been able to determine if this also includes local council borrowing. I am assuming it doesn’t, which of course will make it another problem for another day…
Now that we have a figure of £313.1bn for our “Covid hole” let us review the official payback story. Taking the key points from the UK’s 2021 Budget Statement we see:
- Maintaining the income tax Personal Allowance and higher rate threshold from April 2022 until April 2026.
- To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of Corporation Tax will increase to 25%, which will remain the lowest rate in the G7. In order to support the recovery, the increase will not take effect until 2023. Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19% and a taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
With the UK Income Tax Rates shown in Figure 4:
What does this mean? Luckily, City A.M. is here to help us with the translation:
“Rishi Sunak will make the UK’s big businesses pay off the country’s Covid spending, with £45bn of corporation tax rises to hit companies with profits over £250,000 the hardest.
Corporation tax will rise from 19 per cent to 25 per cent by 2023 for UK companies with annual profits of £250,000 or higher, however a new “super deduction” will also see companies wipe out their tax bills by investing in property, plant and equipment for the next two years.
The chancellor also introduced a stealth income tax rise that will raise almost £20bn to help the government pay off a £355bn Budget deficit in 2020-21.”
OK, so in two years time UK businesses are going to start paying all of this debt back? Oh, but hang on. As we saw above, the UK runs a “natural” borrowing rate (deficit) of £34.1bn per annum. Even during the “good times” we weren’t paying off the national debt, so this grand initiative won’t even touch the sides of the “Covid hole”. Also, we are likely to accrue another £68bn in debt in the two years prior to the “big payback”…
And will this tax increase incentivise businesses to employ young people? And, if so, on what wage?
So, honestly, who pays?
My understanding is that, historically speaking, there are two ways out of debt in a low growth (stagnated) economy. One is default, the other is inflation.
A default essentially means an economic bust, and you have to go cap in hand to the International Monetary Fund for “financial assistance”. Naturally, that comes with certain conditions, essentially tying the government’s hands (see Argentina). And who in power wants that? Which means we are likely to get inflation. Which is great for those who have assets, but not so much for those who don’t (i.e. the under 25s). Are we spotting a pattern yet?
And so the War on Youth continues, and is about to enter its second year. Not only have our youth:
- Lost their jobs
- Lost career development opportunities
- Lost out on education
- Been mentally exhausted by the process (resulting in some teenage girls developing tics)
- Been subjected to record levels of child abuse
They are also being forced to foot the bill for the whole sordid experience. Has there ever been a time when a nation treated its young so malevolently? Surely we’d have to go as far back as the brutal rituals practised in South American civilisations around the 15th century.
A Better Way?
Now, personally, I do not think the UK Government can atone for the irreparable damage they have inflicted upon our young. However, they can stop making it worse. It starts by reviewing who profited during the pandemic. For example:
- which online retailers benefited at the expense of the high street?
- Which online food distributors grew at the cost of brick and mortar establishments?
- Which drug companies signed lucrative contracts with national governments?
Then start extracting the funds as necessary. I don’t expect this to plug the “Covid hole” but surely the search begins there…