Box sets » Coronavirus
The possibility of a new vaccine-escaping Coronavirus variant cannot be ruled out. In this box we explored the possibility of such an escape and investigated the potential economic and fiscal consequences.
The real-terms value of benefits was forecast to fall by around 5 per cent in 2022-23 (£12 billion in total) before catching up the year after, largely due to the significant rise in inflation and the lag in benefit uprating. In this box we compared these post-pandemic uprating dynamics to the real value of non-pensioner benefit rates following the previous three recessions. This showed that the forecast trough in the real value of benefits was deeper in the wake of the pandemic than for any of the previous three recessions.
Take-up of child benefit had been declining since 2012-13, but this downwards trend accelerated at the onset of the Covid pandemic in March 2020, which resulted in a steep decline in take-up over the subsequent 18 months. In this box, we considered the main drivers of the child benefit caseload and the effect the pandemic had on each of them. We set out the reasons why the pandemic contributed to lower take-up, and then considered the medium-term impact of the pandemic-driven drop in take-up on our forecast.
One of the unique features of the coronavirus shock was its extraordinary degree of sectoral differentiation. In this box, we explored the accuracy of our sectoral forecasts and considered the key drivers of forecast errors.
The impact of the pandemic and the national lockdowns has not been equal across the earnings distribution. While it was expected that income tax receipts would be significantly impacted, this box showed that the growth in receipts from higher earners has more than outweighed the fall in receipts from the lowest earners.
The Government introduced several tax deferral policies in response to the pandemic in an attempt to mitigate the strain on businesses. This box provided an update of the impact of those policies, and the level of tax debt still owed.
The labour market has seen mixed performance following the closure of the coronavirus job retention scheme. Low unemployment surprised to the upside whereas participation remained weaker than expected. In this box, we compared these weak participation outturns with two pre-pandemic counterfactuals, and explored the reasons why fewer people were active than we expected in previous forecasts, including by looking at the trends in different age groups. We also discussed whether we expected these trends to unwind over our forecast.
Since our October 2021 EFO the real economy has performed largely as expected in 21-22 but tax receipts have come in well above that forecast. In this box, we examined reasons why tax receipts have recovered so quickly particularly in comparison to economic data.
The NHS is the largest single item of public spending in the UK, and has been placed under extraordinary pressure as a result of the pandemic. Historically, some of the largest policy-related revisions have related to health spending, including the £13 billion a year announced at the 2021 Spending Review. This box explores indicators of pressure across the health service and the potential for these pressures to result in risks to our forecast.
In the final month of the coronavirus job retention scheme (September 2021), over 1 million people were still receiving payments from the scheme. In this box we explore the labour outcomes, up to January 20222, for this population after the closure of the scheme, compared to individuals in employment who were not on furlough in September 2021.
Covid-19 caused dramatic changes in people's behaviour, which affected where, what and how much economic activity took place. In this box we examined the changes which appeared likely to outlast the pandemic, and the progress the economy had made in adjusting to them.
The pandemic generated only modest structural damage to the fiscal position but did still create a gap in what the Chancellor considered a sustainable fiscal position. This box compared the scale of fiscal consolidation facing the chancellor and his approach to repairing the public finances with the challenge that faced Chancellor George Osborne after the financial crisis.
Fiscal space is an important consideration for how quickly and effectively a country's government can respond to a large shock. In this box, we explored different definitions of fiscal space over time, its multi-faceted nature and how the UK's position has evolved over the course of the coronavirus pandemic.
The Government announced in March 2021 that the coronavirus job retention scheme (CJRS) would be phased out completely by the end of September 2021. In this box, we looked at the latest evidence on the number of people on the scheme and their concentration in certain industries, as well as the latest data on vacancy rates. We also discussed how these data related to our labour market assumptions from March 2021.
Past pandemics have had long-run impacts on real interest rates. A recent paper found that 20 years after a pandemic real rates fell by, on average, 1.5 percentage points (though less in the UK). This box examined the evidence for the current pandemic and suggested why this time it may be different.
The history of UK government debt can be characterised as one of ‘punctuated equilibria’ in which long periods where the debt-to-GDP ratio is broadly stable or gradually falling are interspersed with occasional large increases in response to major shocks. This box looked at the instances of parge rises since 1900 and the long period of debt reduction after the second world war.
The path of the pandemic and the associated public health restrictions will be the most important near-term determinants of the UK’s economic and fiscal performance. Our March 2021 central forecast was conditioned on the Government’s ‘Roadmap’ for the lifting of restrictions and despite encouraging news regarding vaccines, there remains considerable uncertainty surrounding the future path of the pandemic and the economy. This box considered the uncertainties around key epidemiological assumptions on how the pandemic will unfold.
The coronavirus pandemic has affected economies of all countries around the world as a result of public health measures and voluntary social distancing. In this box we assessed how the UK had fared relative to other major advanced economics by examining the effect of using different measures of government output, the composition of these economies and the severity of the virus.
Output held up better in November 2020 than we had expected at the time of our November 2020 forecast. In light of this, this box considered whether the economy had become increasingly adapted to operating under lockdowns and other public health restrictions since the onset of the pandemic, and the implications that this might have had for the economy during the January 2021 lockdown.
This box explored how the pandemic and associated policy response changed the flow of funds between the different sectors of the UK economy. It then considered the implications of how those flows unwind for the pace and sustainability of the recovery.
In the March 2021 EFO we estimated that policy measures responding to the coronavirus pandemic would add £344 billion to borrowing, with these policies announced across a number of statements beginning alongside the March Budget. This box updated on our estimate of this cost from November and the relative shares of support going to households, businesses and for public spending.
This box discussed the risks to our medium-term forecast of day-to-day departmental (RDEL) spending, particularly in relation to the impact of the pandemic.
In this box, we discussed how the hospitality, wholesale and retail, arts, manufacturing and construction sectors, as well as the economy as a whole, adapted the usage of the furlough scheme in relation to output, and commented on the increased level of employees on furlough relative to the loss in output in the November 2020 and January 2021 lockdowns when compared with the April 2020 lockdown.
The coronavirus pandemic has forced governments around the World to introduce measures to curtail both the health, and economic impacts of the virus. This box aimed to compare the impacts on health and the economy of the virus with those of other selected countries, alongside the stringency of measures introduced by their respective governments.
In the November 2020 EFO we estimated that policy measures responding to the coronavirus pandemic would add £280 billion to borrowing in 2020-21, with these policies announced across a number of statements beginning alongside the March Budget. This box considered the main statements contributing to this cost and the nature of the support included in these announcements.
The pandemic has undoubtedly had a negative impact on public finances of countries around the world, but questions remain regarding the impact on the immediate and long-term fiscal positions of the UK relative to other major advanced economies. In this box, we considered the immediate term impact on primary deficits and the extent to which this reflected discretionary policy packages; the size of discretionary policy packages and the use of direct tax and spending policy versus liquidity support; and the impacts in the longer term on structural deficits and debt, including revisions between the IMF’s October 2019 and October 2020 WEO.
On 8 July, the Chancellor announced further measures to support the economy as the lockdown is eased, which we were not notified of in sufficient time to incorporate into our scenarios. This box described the measures included in the package and the costs as estimated by the Treasury.
So far during the lockdown period, many businesses are struggling to meet their usual tax payment schedules and are seeking instead to delay those payments. In this box we considered the channels through which this might impact tax receipts and set out the key uncertainties in our medium-term scenario assumptions.
The coronavirus pandemic has hit the economic and public finances of all countries around the world as a result of lockdown measures imposed to control the outbreak and fiscal support provided to aid individuals and businesses. In this box we assessed how the UK had fared relative to other major advanced economics by looking at pandemic-related indicators and forecasts.
At Budget 2020 we assessed the Government's performance against the three proposed fiscal rules that featured in the Conservative Party's 2019 election manifesto. In this box we assessed whether the Government could meet these fiscal rules under our central, upside and downside scenarios.