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UK’s high Covid spending delivers worse outcomes than peers

Coronavirus economic impact

UK’s high Covid spending delivers worse outcomes than peers

Britain languishes near bottom of G7 tables for economic performance and deaths caused by the virus

© FT Montage/AFP

The UK has spent more money fighting coronavirus than almost all comparable countries but still languishes towards the bottom of league tables of economic performance in 2020 and deaths caused by the virus, according to Financial Times research.

On Wednesday, the independent Office for Budget Responsibility said the UK’s economy was set to shrink by 11.3 per cent in 2020, while the government would need to borrow £394bn to fund a shortfall in taxes and £280bn in public spending to fight Covid-19.

Compared with the average of other G7 leading economies, the cost to the UK government is set to be over 80 per cent more, while the UK is also on course to suffer a 90 per cent deeper decline in economic output in 2020 and almost 60 per cent more deaths.

Economists said the UK’s poor performance had stemmed from allowing the virus to become too prevalent both in the spring and autumn before enforcing social distancing, with the result that the government was ultimately forced to impose more draconian restrictions undermining the economy.

Chancellor Rishi Sunak has been the voice in cabinet arguing repeatedly for looser restrictions. And in his spending review, Mr Sunak said that the unprecedented peacetime public spending had been well targeted on ensuring lower unemployment rates than in other countries.

“The latest data shows the UK’s unemployment rate is lower than Italy, France, Spain, Canada and the United States,” the chancellor said.

Britain’s unusual position in the international data starts with the amount the government has intervened to support jobs, households and companies during the pandemic.

Best measured on an international basis by the change in the core budget deficit, the latest data shows that only Canada in the G7 spent more this year on Covid-19.

Canada also had an unusually generous response, with Ottawa spending 14 per cent of national income on support measures, notably wage subsidies and generous increases in social security.

The UK government’s support was broad based, with the OBR documenting £127bn on public services, including £22bn on test and trace alone; £72bn on the furlough and other job support schemes; and £34bn on business support.

The National Audit Office last week criticised the government for tardy efforts to secure personal protective equipment for health workers, costing taxpayers £10bn more than if it had acquired the PPE in 2019.

The NHS test and trace system has come under fire for failing to report results quickly and reach contacts sufficiently fast to stop the spread of the virus this autumn.

Although, as Mr Sunak noted, the job support helped limit the rise in unemployment, it did not stop the UK suffering the worst economic contraction in more than 300 years this year or improve the UK’s economic performance relative to other comparable countries. The forecast 11.3 per cent drop in output is worse than any other G7 country.

One element of the UK’s poor international performance stems from a difference in the way public sector output is measured, but economists said this would not explain the international weakness.

Nor did the heavy UK spending noticeably save lives during the pandemic, with the cumulative death total per 100,000 people from coronavirus at the bottom of the international league table. Only Italy recorded a worse performance on the wider measure of excess deaths.

Reviewing the data, Jonathan Portes, professor of economics and public policy at King’s College, London, said: “The errors came in locking down too late in March, allowing the virus to spread in care homes, and then delaying a second set of national restrictions well after most scientists and economists realised it was inevitable.”

Prof Portes added that there was also strong evidence of “wasteful and potentially corrupt procurement practices”, which was likely to “erode public and business confidence in the government’s strategy, making economic recovery harder”.

Samuel Tombs, UK economist at Pantheon Macroeconomics, said slow action in response to the virus was to blame for the UK’s “toxic combination” of poor economic and health outcomes. “Germany, for instance, has had shorter and less intense lockdowns because it acted earlier to impose restrictions,” he added.

Tony Yates, an independent economist who has campaigned for government to link policy on health and economics, said that with ministers still talking about the choices between lives and livelihoods, “policymaking in the UK is still stuck in the old world in which the two subjects are kept apart”.

“The government started out reluctant to lock down the economy, misperceiving what is in reality a short term investment in the benefits of a virus free economy as a ‘cost’ to be traded off against lives lost.”

He criticised the decision to ease restrictions when the government’s data still showed there were still close to 20,000 new symptomatic cases of Covid-19 a day over the most recent seven day period of testing.

“The government is wrong to encourage household and intergenerational mixing at Christmas, just when the returns to stopping infections and deaths now are highest, on account of the deployment of a vaccine being very firmly in sight now,” Mr Yates said.

The Treasury said the UK’s economic performance had been bolstered by the support given. “As the OBR said in their forecast this week the outlook would have been far worse without our unprecedented levels of financial support, which has prevented job losses, insolvencies and minimised long-term economic scarring,” it said in a statement.

The chancellor also hopes that the recovery in Britain next year will be stronger than in other countries, partly because the UK had such a deep downturn and partly because it has already secured early access to large quantities of coronavirus vaccines.

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