The Office for Budget Responsibility has warned an ageing population could contribute to the UK’s national debt tripling over the next 50 years
Andy Burnham has been warned the UK faces an “explosive” rise in the country’s national debt.
The Office for Budget Responsibility, the government’s fiscal watchdog, says the public finances are on an “unsustainable and ever-rising path”.
The UK’s national debt pile already stands at just under £3trillion – equivalent to almost 100% of the country’s gross domestic product (GDP), or the value of everything it churns out. In a new report, the OBR warns this could surge to 300% over the next 50 years. That would be around £9trillion in today’s money.
Almost all of its scenarios show that public finances will eventually move onto an unsustainable path because they suggest that “debt will ultimately grow explosively”.
The sobering forecasts come as Mr Burnham prepares to replace Sir Keir Starmer as PM, with tackling the ballooning debt and public sector borrowing one of his big economy challenges.
The OBR said “The UK’s public finances are currently in a challenging position relative to history and to other similar countries, with government debt having increased by one of the largest shares of GDP of any advanced economy over the past two decades.”
It singled out an ageing population and a surge in healthcare spending as piling pressure on the UK’s already strained public finances over the next 50 years.
The OBR projected the UK population will peak at around 73 million by 2050, then start to fall. Healthcare spending alone is forecast to rise from 8% of the whole economy in 2030/31 to 13% by 2075.
Another costly policy has been the triple lock pledge to increase the state pension by whichever the highest out of average earnings, inflation or 2.5%. Mr Burnham has committed to keeping to sticking to the Tory-led coalition’s promise. But the OBR estimates the triple lock has cost around three times more than initially envisaged because of volatile inflation over the past two decades.
The cost of adult social care is also forecast to jump from 1.2% of GDP in 2030/31 to 1.8% by 2075/76, a similar rate of growth to that in health spending. Other welfare spending is projected to remain relatively stable, at around 6% of GDP.
While government spending is set to rise, one of the government’s big tax raising measures is forecast to fall. The planned banning of new petrol and diesel car sales, and a switch to electric vehicles, will reduce income from fuel duty, and contribute to a drop from 1.6% of GDP to just 0.5% over the next five decades.
William Ellis, senior economist at IPPR, said: “It’s right that the government – and Andy Burnham as the prospective new prime minister – have committed to the fiscal rules. With markets unstable and borrowing costs high, responsible borrowing gives markets the certainty they need.
“But the OBR’s report shows that sound public finances mean taking sustainability seriously over the next fifty years, not just until the next election.
“Ageing, climate change and weak productivity will pile pressure on the public finances for decades – and the current rules reward short-term headroom whilst penalising the very investment that would ease those pressures. The government should consider rethinking the fiscal rules in the years ahead to meet the long-term challenges we face.”
