The UK’s debt mountain could be six times the size of the economy within 50 years as the aging population, climate change and global insecurity put the country on an ‘unsustainable’ course.
The shocking picture has been laid bare in the latest assessment by the Office for Budget Responsibility watchdog.
Public spending is already standing at 45 per cent of GDP, the highest sustained level since the 1970s. The tax take is rising to 37.1 per cent, a peak since the 1940s.
However, the OBR cautioned that within drastic action pressures will push spending to over 60 per cent of GDP by the 2070s.
The national debt currently stands at around £2.7trillion, roughly the same size as the economy. But that figure could jump to more than 270 per cent – likely requiring huge scaling back of services and welfare.
Failure to boost productivity significantly would mean the problem being even more dramatic – with debt estimated to reach more than six times GDP.
Labour ministers immediately seized on the findings to argue that the Tories had failed to tackle deep-seated problems.
The OBR cautioned that within drastic action pressures will push spending to over 60 per cent of GDP by the 2070s
Failure to boost productivity significantly would mean the problem being even more dramatic – with debt estimated to reach more than six times GDP
The alarm was sounded in the OBR’s latest Fiscal risks and Sustainability report.
It said: ‘Public spending is at nearly 45 per cent of GDP in 2023-24 – its highest sustained level since the mid-1970s – as a result of increased spending on public services, welfare, and interest costs.
‘To reduce the deficit and arrest the rise in debt over the next five years, the previous Government’s fiscal plans were based on holding real growth in public spending below that of the economy, and the tax take increasing to 37.1 per cent of GDP, which would be its highest level since the late 1940s.’
The report pointed to ‘an ageing population, with a falling birth rate and the ‘baby-boom’ cohorts moving through retirement putting downward pressure on revenues and upward pressure on spending’.
Climate change and mounting global tensions with states such as Russia and China, which have sparked promises from ministers to bolster defence spending, are also major challenges.
‘The analysis in this report shows that, based on policy settings in March 2024, these and other pressures would eventually put the public finances on an unsustainable path,’ the report said.
‘Over the next 50 years, public spending is projected to rise from 45 to over 60 per cent of GDP, while revenues remain at around 40 per cent of GDP (Chart 1.1). As a result, debt would rise rapidly from the late 2030s to 274 per cent of GDP in our baseline projection.
‘Long-term projections such as these are inherently highly uncertain but there is a similar upward debt trajectory in nearly all the alternative scenarios that we consider. Indeed, debt is projected to rise further to over 300 per cent of GDP, when further shocks and pressures are taken into account.
‘In practice, 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.
‘On our baseline projection, to return debt to its pre-pandemic levels would require an average fiscal tightening of 1.5 per cent of GDP per decade over the next 50 years.’
The report said health spending is projected to rise ‘steadily’ from 7.6 per cent to 14.5 per cent of GDP over the horizon period. .
Spending on state pensions rises from 5.2 per cent to 7.9 per cent of GDP ‘due to both the ageing of the population and the cost of the triple-lock policy’.
‘Under our baseline demographic and economic assumptions, maintaining fiscal sustainability over the long term would almost certainly require further fiscal policy adjustment,’ the report said.
‘Keeping debt at around 94 per cent of GDP would require a fiscal policy tightening of an additional 0.25 per cent of GDP every year from 2034-35.
‘Were these fiscal adjustments to come from greater spending restraint, this would require either significant improvements in public sector productivity or strict prioritisation between competing pressures.
‘Were the adjustment to come from further increases in taxation, governments would need to weigh any additional direct revenue yield against the impact of a rising tax take on incentives to work, investment, and save.’
The national debt currently stands at around £2.7trillion, roughly the same size as the economy. But that figure could jump to more than 270 per cent – likely requiring huge scaling back of services and welfare
The OBR has given a long-term view of the public finances in its report today
The OBR projecting that the total population rises from 68 million in 2022 to 82 million in 2074, with immigration the only thing preventing it falling.
‘Compared to our 2022 FRS, life expectancy and the birth rate are unchanged. The latter is 1.59, below the rate of 2.1 required for the population to remain stable in the absence of other changes and just above the record low of 1.5 reached in 2022,’ the report said.
The only change to the population projections is a higher ONS assumption for net migration, which settles at 315,000 a year from 2028-29 onwards, compared to 129,000 a year assumed in FRS 2022.
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.
‘Highest debt since the 1960s, highest taxes since the 1940s, and debt on track to be almost three times our GDP.’
***
Read more at DailyMail.co.uk