The UK’s budget watchdog has said the coronavirus job retention scheme could cost £84bn this year, which would push up government borrowing to well north of £300bn.
It comes after chancellor Rishi Sunak extended the furlough scheme on Tuesday. Under the programme, the government pays 80 per cent of “furloughed” workers’ wages up to £2,500 a month.
The chancellor said that business would be asked to contribute towards the costs of the scheme from August. The details are yet to be decided.
The Office for Budget Responsibility’s (OBR) today said it will cost £63bn in its current form until the end of July. However, it said it costs £50bn overall when taxes are considered.
The OBR said it cannot put a precise figure on the cost of extending the scheme until October. It said it does not know how much firms will contribute.
Yet it said that it would cost roughly £84bn if the further three months of the scheme cost half as much. The true cost could therefore be higher, although it would also boost tax receipts.
The scheme has been highly popular, but has cost more than the Treasury initially estimated. Official figures today showed that 75 per cent of UK firms have applied for some furlough money. Roughly 7.5m workers have been furloughed.
The budget watchdog said public borrowing this year is likely to be at least £298bn.
That would be by far the highest peacetime budget deficit (the amount the government spends above what it receives, for example in taxes). Just months ago the budget was forecast to be around £55bn this year.
However, the true figure could be well north of £300bn. This is because the job retention scheme will add significantly to borrowing.
The OBR estimated that the government’s support packages and tax breaks will cost more than £120bn this year. Much of the rest of the £300bn borrowing figure will be driven by lost tax receipts as the economy crashes.
That would take the UK’s budget deficit this year to around 15 per cent of GDP. That is considerably higher than the roughly 10 per cent deficit seen after the financial crisis.
Such a jump would take the overall debt pile to around 96 per cent of GDP, the OBR said today.