How Covid changed the British state

The Guardian

20-03-2025

At 9.26am on Wednesday 18 March 2020, Tim Leunig was cycling to Wimbledon station when he got a text from his boss, Rishi Sunak, urging him to work 'at pace', on a scheme to protect UK workers from the looming Covid lockdown.
For the rest of his commute, the economist mulled over what he knew about the furlough schemes that existed in Germany and the US, to protect workers during temporary shutdowns.
When Leunig arrived at the Treasury, where he worked as an adviser, senior officials agreed that this was the right approach. By noon, they were pitching the Coronavirus Job Retention Scheme to the chancellor (Leunig admits he is envious of the name the Australians came up with for their equivalent: Jobkeeper).
'That was the most useful two hours, 34 minutes of my life,' he recalls. Furlough, as it became known, was signed off by Sunak within the hour, and announced two days later, after consultation with unions and business groups.
The policy marked a radical – if temporary – shift in the role of the state, as the Treasury stepped in to underwrite the salaries of millions of citizens whose jobs could otherwise have disappeared. The scheme went on to cost £70bn.
Agreed by a chancellor who would have much preferred to be slashing taxes and shrinking the state, furlough is perhaps the clearest example of the way the rules were ripped up in that period – often necessarily, but with long-lasting consequences.
As one Treasury adviser said later, as ministers tried to wind up various costly support schemes: 'Covid broke maths.'
And that is the most direct way in which the travails of the pandemic period are still felt today – through their impact on the public finances.
Public sector borrowing hit almost 17% of GDP in 2020-21, the highest level since the second world war, as the government scrambled to gear up the NHS to cope, as well as cushioning the blow for struggling firms and households, by increasing universal credit by £20 a week, for example.
As in many other economies, the result was that public sector debt soared. In the UK, the cost of the bank bailout and a deep recession in 2008, followed by a decade of sluggish growth, had already caused public debt as a share of GDP to climb from a low of 27% of GDP in 2000, to 84% on the eve of the pandemic.
As the costs of fighting Covid hit home, it soared to almost 110% of GDP by 2023 – the highest level since the 1950s, when the UK was still working off the legacy of six years of debilitating conflict in the second world war. It remains close to 100%.
Many of the key tax and spending decisions made in the past four years, starting with Sunak's 6p increase in the corporation tax rate in the 2021 budget, have been about trying to put the public finances back on an even keel.
'The big point is that the pandemic added £400bn to the debt, possibly more if the economy is still smaller than it otherwise would it have been,' says Paul Johnson, the director of the Institute for Fiscal Studies (IFS). 'That is actually one of the things that's creating huge problems for the public finances. We're now spending more than £100bn a year on debt interest, and that's twice what it was pre-Covid.'
One former senior Tory adviser, in government during the pandemic, says it is striking how little Covid now figures in the public debate about tax and spend, however.
'It's crazy: there's a really powerful and actually true argument which is: we had to do loads of stuff during Covid and now we're having to pay for it – but it's like we've gone through a trauma that no one really wants to talk about, and if we don't talk about it we can pretend it didn't happen.'
Separate from the impact on the public finances is the direct, long-term effect of the pandemic on public services, many of which are still working through the practical consequences.
For the NHS, that means the well documented struggle to deal with waiting lists, which surged as hospitals reorientated towards treating the virus and the public stayed at home.
It also means the challenge of trying to support the many thousands of people still experiencing the symptoms of long Covid – very likely to be one driver behind the surge in people unable to work.
And there are myriad more subtle ongoing impacts, too, which are harder to measure – such as the dark shadow cast by the psychological impact of the anxiety and grief that accompanied the deadly outbreak.
IFS research published earlier this month collated evidence to show that the mental health of the UK population appears to have declined since the pandemic. It included the grim fact that there were 3,700, or 24%, more 'deaths of despair' – from suicide, drugs or alcohol – among working age people in 2023, than there were on average in the five years pre-Covid.
The prevalence of mental health conditions was already rising before the pandemic, and we may have become better at acknowledging and diagnosing them; but a full 36% more people were in touch with mental health services last year, than five years earlier.
The economist and former Labour adviser James Meadway argues, 'the thing with Covid is that it accelerated us along a demographic curve: the transition to everyone being a bit older and a bit sicker than they were'.
For these and other reasons, including the cost of supporting working age adults unable to take up employment, public spending as a share of GDP, a proxy for the size of the state, has not returned to its pre-Covid level.
There is potentially a more subtle and diffuse impact on public services, too, which comes through a shift in public expectations about what government can and should do.
Leunig argues that the large-scale intervention in the energy market made by Liz Truss's government, protecting even the wealthiest households from the full force of the price rise that resulted from Russia's invasion of Ukraine, at a cost of £23bn, would not have happened without the precedent of Covid.
'I think what we've done is, we've now created an expectation that when something happens to the whole of the nation that is genuinely unexpected, the government will step in,' he says. 'The government is, if you like, the insurer of last resort.'
Several former government figures also point to the fact the pandemic galvanised rapid change in key policy areas – from rough sleeping, to introducing online GP appointments. Some aspects of this transformative way of working stuck; many didn't.
One thing that did not emerge was a determination to tackle many of the deep-seated challenges exposed by the pandemic.
These include the fragmented and overstretched state of social care, for example, which was laid bare by the prevalence of deaths in the sector, despite Matt Hancock's claim to have thrown a 'protective ring' around care home residents.
Boris Johnson had already promised to 'fix' social care, and after the spotlight was thrown on it by the pandemic, announced a 2p levy on national insurance in 2021, to pump more funding into the sector (and protect families' inheritances).
But the policy was scrapped by Truss, and the Labour government has opted to commission a review, apparently with hopes of constructing a cross-party consensus on the way forward.
Similarly, the £20 a week uplift in universal credit introduced during the crisis appeared to be an acknowledgment that the usual rate was too little to live on – but it was scrapped in autumn 2021, as Sunak began the work of patching up the public finances.
Survey evidence reported in a recent report from the thinktank Demos, about 'social capital' – the connections between individuals that help make economies work better – suggested levels of trust rose during and after the pandemic, as neighbours helped each other out, and thousands of people clapped for the NHS from the doorsteps.
But the idea that a new spirit of collectivism had been kindled, that could lead to a remaking of the social contract, in the spirit of the Beveridge report, published in the depths of war in 1942, did not survive the UK's emergence from lockdown.
'None of that really lasted,' says Meadway. 'There was all this talk of, 'the government can do lots of things, and we can think very differently about the welfare state'. And none of it really happened.'