Treasury announces extra £9.5bn for public services

14 April 2020: the Chancellor has increased the coronavirus emergency response fund to £14.5bn to cover the escalating costs of dealing with the pandemic.

Easter Monday saw Rishi Sunak announce an extra £9.5bn for the NHS and public services, adding to the £5bn already included in the emergency package announced with the Spring Budget on 11 March 2020.

This brings additional funding for the NHS and public services to £14.5bn, comprising £6.6bn for health services, £3.5bn to keep the railways running, £1.6bn for local authorities, and £0.9bn for food packages and other support for clinically vulnerable people, together with £1.9bn for the devolved administrations in Scotland, Wales and Northern Ireland.

Altogether, this brings the estimated cost of fiscal measures announced by the Government in response to the coronavirus pandemic to somewhere in the region of £95bn. In addition to the £14.5bn for the NHS and public services, £27bn has been announced in business rates discounts and small business grants, £5bn in enhancements to Universal Credit and housing benefit and £750m for charities. The costs of the employee furlough and self-employed income replacement schemes will depend on take-up, with estimates that these could cost around £40bn and £9bn respectively for their initial three-month terms.

This does not include the effect of collapsing tax revenues and higher welfare spending on the public finances, nor any potential costs from the £330bn of loans and guarantees being advanced to support business. As a consequence, the fiscal deficit this financial year is now almost certain to exceed £200bn, compared with the baseline of £55bn set out in the Spring Budget just over a month ago.

Martin Wheatcroft FCA, adviser to ICAEW on public finances, commented: “This is probably not going to be the last announcement of additional funding for the NHS and public services this year given the extraordinary challenges posed by the coronavirus pandemic. 

“It is positive that the Chancellor has made it clear that money will be made available to front-line services as needed, an important signal for budget holders conditioned by a decade of austerity to manage resources carefully, rather than to spend whatever it takes to achieve a critical objective.

“We can and will worry about the bill later, when the need for a long-term fiscal strategy to put the public finances onto a sustainable path will be more important than ever before.”

This article was originally published by ICAEW.