This afternoon the Office for Budget Responsibility (OBR) published their Coronavirus reference scenario publication, which sets out an initial exploration of the possible impact of the coronavirus outbreak on the public finances. In it, they say that: "Our rough judgement was that this would increase public sector borrowing this year by £218 billion relative to our March Budget forecast (to reach £273 billion or around 14 per cent of GDP). Once the crisis has passed and all the policy interventions have unwound, borrowing falls back relatively quickly to roughly the Budget forecast, but net debt would remain around £260 billion (10 per cent of GDP) higher by 2024-25".
Responding to these new figures, Paul Johnson (IFS Director) said:
"We must not underestimate just how staggering these figures are, and by how much the economic outlook has shifted compared to just a few months ago. Government borrowing is set to rocket to levels well above those seen during the financial crisis, and debt is set to approach 100% of GDP. These figures are predicated on a short-term economic hit and a swift recovery. Should the lockdown last for longer than 3 months or the economy fail to bounce back, the picture would worsen further. We will need a complete reappraisal of economic policy once the current economic dislocation is behind us. Tough decisions will have to be made which are likely to involve tax rises and higher debt for some time to come. The only other alternative would be another period of austerity on the spending side. That looks unlikely"
Notes to editors
1. You can find the OBR's Coronavirus reference scenario publication on their website here: https://obr.uk/coronavirus-reference-scenario/
2. You can find ongoing IFS analysis on the economic effects of Coronavirus (Covid-19) and policy responses to it here on our website: https://www.ifs.org.uk/coronavirus