The Office for Budget Responsibility (OBR) said it expects spending on furlough schemes and grants to the self-employed will cost an estimated £132.5 billion in the current financial year, rising from £123.2 billion at the last update on May 14.
Officials have previously said the extra spending was helping to partially offset the plunging gross domestic product (GDP) used to measure growth.
Last month, Chancellor Rishi Sunak announced an extension to the furlough scheme to the end of October, and a second grant for self-employed workers available from August.
The OBR also estimated last month that the deficit could hit £300 billion this year, with a scenario of a three-month lockdown and three months of restrictions easing.
But there are now fears that once the money dries up the UK could face unemployment levels not seen since the 1980s, according to former chancellors giving evidence to MPs on Wednesday.
The OBR said: “The government’s economic policy response to the coronavirus crisis provides support for individuals and businesses through grants, loans and guarantees. This will have substantial direct budgetary costs.
“But the measures are designed specifically to support the economy through this temporary shock, and so they should help prevent greater economic and fiscal damage in the long term.”
It added that the new numbers have been calculated as more data and spending becomes available, but warns that further updates may be needed.
The OBR said it will focus its forecasts on the cash impacts from policies – for example the grants scheme for self-employed workers affected by the lockdown.
Longer-term costs to the economy will be factored in at a later date, the OBR said, adding: “How the impacts are recorded in the public finances is a matter for the ONS (Office for National Statistics), and that is a further source of uncertainty until those classification decisions are made.
Breaking out some of the costing estimates, it said the furlough scheme bill is expected to increase by £4 billion compared with last month’s estimates.
The gross costs for the government’s Coronavirus Job Retention Scheme is cut from £63 billion to £60 billion, once the new arrangements are brought in from August which see employers contribute to furloughed staff bills.
But tax receipts from the scheme have been revised down, bringing a net cost to the Chancellor of £54 billion versus £50 billion in the previous estimates.
A final self-employment grant due to launch in August is also included, bringing the estimated total cost for the payments to £15 billion, up from £10.5 billion.
Other costs added include £100 million for removing import duties on medical products and a further £100 million on bringing VAT to 0% for personal protective equipment (PPE).
All other estimates were left unchanged from the May 14 update.
The OBR said: “Given the pace at which the Treasury and other departments have developed these policies, we have not completed our standard iterative scrutiny processes to generate policy costings.
“Instead, the costs draw on the Treasury’s published estimates for some measures and our own estimates for those that have not been costed.
“Where possible we have cross-checked our estimates against those presented by other organisations.”