The economic impact of coronavirus
Are you worried about the long-term economic impact of the coronavirus lockdown? If you are, you’re not alone.
As the coronavirus pandemic is brought under control and restrictions are gradually lifted, concerns around the health risks are easing. However, taking their place are fears about what the lockdown and ongoing social distancing guidelines mean for the economy in the coming months and years.
A survey from Aegon found those very worried about their own health was just 8%, compared to 15% in March when the lockdown was first brought in. Concern about family members remains higher at 17% but is still significantly lower than the 31% registered in March.
Instead, concerns appear to have shifted to the long-term economic impact and financial security. Some 90% of individuals said they had concerns about the impact of Covid-19 on the economy, with 84% still closely following the news for updates.
Steven Cameron, Pensions Director at Aegon, said: “In the initial period of outbreak, we were all understandably in a heightened state of alert about how we individually, as families and as a nation could navigate the greatest public health crisis in more than a century.
“Whilst remaining vigilant is still key there are some signs that health concerns are coming off their peak and are being replaced by growing concerns about damage to the UK economy and what that will mean for jobs, incomes, taxes and wealth. While the government's focus rightly continues to be on protecting people’s health and lives, our research findings point to a growing awareness of the difficult balance the government will have to strike as it also seeks to protect livelihoods and the longer-term health of the economy.
Economic forecasts vary hugely and offer no certainty about how the economy will recover over the coming months. But the lockdown and ongoing social distancing restrictions will certainly have some impact on the economy.
There are worries that significantly decreased revenue, particularly in sectors like retail, travel and entertainment, over the last few months will mean many businesses and jobs are lost. The Bank of England has warned that the British economy could shrink by 14% this year and unemployment could more than double by spring 2021. Other forecasts paint an even more pessimistic picture.
Whilst forecasts can be a useful indicator, it’s important to keep in mind that they aren’t always accurate, and a huge number of factors will influence how the UK economy performs over the coming months. If you’re worried about economic uncertainty affecting your plans, remember to keep the long term in mind. Historically, markets and economies have recovered when you look at performance over an extended period.
Repaying the cost of coronavirus: Will income taxes rise?
The government has delivered unprecedented support to businesses and individuals during the coronavirus pandemic. This includes the furlough scheme, where the government is paying up to 80% of the salary of workers that are unable to work, which millions have benefitted from.
Whilst it’s hoped these steps have saved millions of jobs, it has come at a cost. As we still battle Covid-19, it’s impossible to tell how big the final bill will be. According to the Office for Budget Responsibility, it could be as much as £298 billion for the 2020/21 tax year.
In order to pay for this, the government will need to raise revenue from somewhere. So, it’s not surprising that people are wondering if manifesto pledges will be broken and taxes will rise. A leaked Treasury document highlighted some of the options the government is considering to balance the books, this includes increasing Income Tax and ending the State Pension triple lock, which sees the State Pension increase by a minimum 2.5% each year.
The Conservatives pledged not to “raise rates of Income Tax, National Insurance or VAT”. These, however, are among the largest contributors of tax revenue and the increasing deficit could mean promises are broken.
We can’t say for certain what will happen over the coming weeks and months, but we do know that the government will need to take action to repay the costs. It seems likely that some tax changes are on the horizon.
Preparing for uncertainty
Predicting what will happen over the coming months and years is impossible. There are a whole host of factors that can influence the economy but there are things you can do to ensure you’re able to weather turbulent periods should they happen.
Build up and maintain your emergency fund, ideally three to six months of outgoings, to fall back on if needed
Go back to basics with budgeting and understanding where your income goes
Have appropriate financial protection policies in place to act as a safety net if it’s needed
Review your investments and savings with a long-term goal in mind
Assess your finances and plans as changes are announced.
If you have concerns about your financial goals amid economic uncertainty, please get in touch.