The analysis from the Office of Budget Responsibility, a government-financed fiscal monitor, assumes that restrictions on movement will be in place for three months, to be followed by three months of a gradual return to normal. Lower profits and falling oil prices play a large role in eroding the tax base, the OBR said. The budget covers the period from April 1, 2020, to March 31, 2021.
The British government announced a nationwide lockdown March 23 and is reviewing it every three weeks. It is expected to keep the lockdown in place after a review this week.
The OBR also estimated that value-added tax and excise tax revenues would fall by 21%. The OBR said that air passenger duty would be hit "particularly hard." Capital taxes will be down 28%, the office estimated. Income tax and contributions to national insurance could fall by 16%.
The report, which the OBR specified wasn't a forecast but rather a scenario based on assumptions, suggests that the crisis will have a lasting impact on Britain's economy and public finances. The country's economic output, or gross domestic product, is expected to drop by a staggering 35% in the second quarter this year but is then due to bounce back quickly, the report said.
On the year, GDP is due to fall 13%, the report said, a decline that "would comfortably exceed any of the annual falls around the end of each world war or in the financial crisis."
Public sector net debt is due to end the year at 95% of GDP, well above the 77% that was forecast before the global outbreak of the novel coronavirus, which causes COVID-19, a respiratory disease. Even in four years' time, debt is expected to stay at 10% of GDP, above its pre-crisis forecast.
The U.K. chancellor of the Exchequer, Rishi Sunak, said in response to the OBR report that while the report showed that government action was helping offset some of the economic costs of the crisis, the future remained difficult.
"People should know that there is hardship ahead, and we won't be able to protect every job or every business," he said.
--Additional reporting by Matt Thompson. Editing by Robert Rudinger.
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