British economy hit harder by lingering effects of “long covid” than others

Britain’s economy continues to grapple with the long-term effects of the pandemic due to the lingering health, and subsequent productivity decline what some are referring to as “long Covid.”

The surge in public debt, over a million additional people now claiming sickness benefits, a record-high postwar tax burden, an expanding state, and, above all, stagnant economic growth are enduring consequences of decisions made during the Covid crisis. Some of this damage, however, was simply accidental.

“I will be honest, this was a mistake,” an article by Bloomberg cites Tim Leunig, the chancellor’s chief economic adviser at the time, who is reflecting on the scale of the £70 billion (approx. $93.2 billion) furlough scheme he helped design to safeguard jobs and incomes after the UK locked down in March 2020.

According to the article, the UK saw one of the steepest increases in its debt-to-GDP ratio among advanced economies between 2019 and 2022—surpassed only by Spain. By 2024, Britain had the largest rise in net debt relative to GDP across all 33 advanced nations assessed by the International Monetary Fund. This wasn’t an inevitability: countries like Denmark, Portugal, and the Netherlands actually reduced their debt over the same period.

While most advanced economies experienced a post-pandemic rise in labour force participation, the UK stood out in the opposite direction. More than a million people exited the workforce and began receiving health and disability benefits, adding £13 billion annually to the welfare bill. Yet, a House of Lords inquiry found no evidence of overall health deterioration across the population.

Leunig believed the rules of the Coronavirus Job Retention Scheme were clear: it would cover up to 80% of wages, capped at £2,500—meaning the typical payout would be £2,000. But civil servants misunderstood the draft.

“We were absolutely exhausted, as you can imagine. We’d been working through the night. I thought we were agreeing to a cap of £2,500, with workers receiving 80%—£2,000. Then we announced it, and I thought, ‘Whoa, what just happened?’”

Beyond the billions spent due to that confusion, the article notes that the pandemic also reshaped public attitudes toward government. A 2023 government report estimated the total cost of the UK’s Covid response at £373 billion—13% of GDP—making it the largest public rescue package since World War II, trailing only the US in scale. Of that, £90 billion went to health spending and £190 billion to households and businesses.

What had traditionally been a safety net became, as Leunig puts it, a “hammock” that propped up nearly every sector. Even Liz Truss—who lasted just seven weeks as prime minister in 2022 and was an outspoken advocate of small government—planned to spend £200 billion shielding households from the energy crisis.

Leunig believes much of today’s economic malaise can be traced directly back to the pandemic years. While Brexit and other factors also played roles, Britain’s post-Covid recovery has clearly lagged behind that of its peers.

“Covid seems to have been a training ground for people to claim welfare to maintain their incomes,” Leunig says. “Sickness benefits are more generous than unemployment ones, so everyone wants to appear sick.” Productivity—the key driver of living standards—collapsed, and GDP per capita still hasn’t returned to pre-Covid levels.

Today, Britain is weighed down by high debt, elevated interest rates, rising welfare costs, and sluggish growth. The result: the heaviest tax burden since WWII and crumbling public services, as interest payments eat into departmental budgets. Public dissatisfaction with the NHS is now the worst on record since the British Social Attitudes survey began in 1983.

Bloomberg calls attention to the fact that this new social contract—where taxpayers pay more but receive less—may be fueling support for Nigel Farage’s populist Reform party, which recent polls suggest would win an election if held today. The fingerprints of Covid are all over this economic decline.

By Nazrin Sadigova