The accounting, budgeting and fiscal impact of COVID-19 on the United Kingdom

Abstract

Purpose: This paper analyses the nature and impact of budgetary responses to the pandemic in the context of the strengths and weaknesses of UK public sector financial management. Design/methodology/approach: The analysis is developed through consideration of four modes of government accounting. Data are drawn from multiple official sources, which report actual and forecast government receipts and expenditures as the crisis unfolds. Findings: There have been dramatic effects on UK government finances. Government receipts have fallen by 12% and expenditures have increased by 36% in the first three months of the crisis (April–June 2020), compared to the previous year. Government debt increased to £1,984bn (99.6% of GDP), the highest percentage since March 1961 (ONS, 2020c). The pandemic will have the greatest impact on UK public finances in 2020–21, with a record budget deficit which, under the OBR (2020c) central scenario, may approach £322bn and increase public sector net debt to £2,205bn (104.1% of GDP). Research limitations/implications: The research is necessarily limited by the impact of the pandemic and the government's responses in a rapidly changing social, economic and fiscal environment. Practical implications: Statistical accounting and budgeting dominate attention because of reporting speed and issues of international comparability. The pandemic has emphasised the importance of timeliness. Government financial reporting is marginalised, though this should not be permanent if the pandemic retreats. Fiscal sustainability analysis will warn that UK public finances are even more unsustainable than before the pandemic. Social implications: The interaction of higher levels of debt and future increases in interest rates might result in a new era of austerity and further centralisation of public power and economic decision-making in one of the world's most centralised democracies. Originality/value: The paper provides an early, structured analysis of the impact of the COVID-19 emergency on UK government finances.

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DOI

http://dx.doi.org/10.1108/JPBAFM-07-2020-0121

Repository URI

http://eprints.gla.ac.uk/222917/