Public finances on ‘unsustainable path’ without Government action, says watchdog
The Office for Budget Responsibility warned that the national debt was on track to triple against the size of the economy over the next 50 years.
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Your support makes all the difference.The UK public finances are on an “unsustainable path” without future tax increases, spending reductions or sharp improvements to productivity, according to the fiscal watchdog.
The Office for Budget Responsibility warned that the national debt was on track to triple against the size of the economy over the next 50 years.
David Miles, member of the OBR’s budget responsibility committee, said “something has got to give” to take the national debt away from an “unsustainable path”.
The latest OBR Fiscal Risks And Sustainability report said the public debt was set to jump to over 270% of gross domestic product (GDP) by the mid-2070s.
UK national debt currently stood at around £2.7 trillion, or 99.4% of GDP, according to estimates from the Office for National Statistics for July.
This sits around the highest levels the UK has seen since the early 1960s.
The latest report highlighted that an ageing population linked to the falling birth rate, fiscal costs from climate change and rising geopolitical tensions were all expected to put increased pressure on Treasury budgets.
If these pressures and shocks were to materialise as we project, then governments would need to take mitigating policy action to prevent this debt spiral from occurring
Public spending was at almost 45% of GDP for the past fiscal year – its highest sustained level for almost 50 years.
The OBR said these potential pressures could push public spending to over 60% of GDP over the next 50 years.
But it projected that state revenues – money brought in, predominantly through taxes – were expected to remain at around 40% of GDP.
The report said: “If these pressures and shocks were to materialise as we project, then governments would need to take mitigating policy action to prevent this debt spiral from occurring.”
It comes amid warnings from Chancellor Rachel Reeves that the public finances already face a “£22 billion black hole”.
The new Labour Government has said some tax increases and public spending cuts, such as the move to strip winter fuel payments from millions of pensioners, are needed as a result.
The latest projection showed that health spending was particularly likely to soar over the coming decades, with projections it would grow from 7.6% of GDP to 14.5% over the next 50 years.
Spending on state pensions was on track to rise from 5.2% to 7.9% of GDP, while net interest spending was estimated to quadruple from 2.8% to 11.3% of GDP as the stock of debt increased.
Richard Hughes, chair of the OBR, said increasing tax revenues compared with spending or halting spending increases could help offset the potential for increased debt.
“To just spend more without addressing revenues would be unsustainable,” he said.
“One solution would be to narrow the gap between tax revenues and expenditure, possibly by not increasing spending by the level projected.”
The projections reflect demographic trends over 50 years - the fiscal position of governments have less impact than those factors, compared with things like ageing population
Chief Secretary to the Treasury Darren Jones said: “The OBR has laid bare the shocking state that our public finances were left in by the previous government.
“That’s why this Government began work immediately to address the inheritance with tough choices on spending alongside ambitious action to drive growth.”
But Mr Hughes suggested the projections were not solely linked to the previous government.
He said: “The projections reflect demographic trends over 50 years – the fiscal position of governments have less impact than those factors, compared with things like ageing population.
“These are also not unique challenges for the UK at this point of time. Other countries like the US are in a similar position.”
The Prime Minister’s official spokeswoman said: “The Government has been clear that it has inherited an economy that isn’t working for working people.
“That’s why the first step is restoring economic stability.
“Taking tough decisions to fix the foundations of our economy so we can rebuild Britain and pursue growth is the central mission of this Government, but the Chancellor has been very clear, you cannot pursue growth without first fixing the foundations and balancing the books.
“But of course, work has begun to support the economy and businesses, and that’s what our focus will be on.”