Tax hikes and spending cuts worth an extra £39 billion every decade for the next 50 years would be needed to prevent ballooning national debt levels, the UK’s fiscal watchdog has warned.
The Office for Budget Responsibility’s latest Fiscal Sustainability Report makes for grim reading as it warns over the outlook for government borrowing and debt levels following the recent NHS spending pledge.
Unless the Government takes action, the OBR estimates the main budget deficit would rise from 0.3% in 2022-23 to 8.6% of gross domestic product (GDP) by 2067-68 – a rise equivalent to £176.5 billion a year.
Forecast of public sector debt of GDP by 2067
This would mean public sector net debt would jump from 80% of gross domestic product (GDP) in 2022-23 to 282.8% by 2067-68 and continue rising after that, according to the OBR.
The OBR calculates that the Government’s promise to spend £20.5 billion extra on the NHS is alone responsible for pushing up government borrowing forecasts by 1.5% of GDP and net debt by 57.9% of GDP in 2067-68.
Its solution to address the funding gap is a combination of higher taxes and less spending, signalling no end yet for the Government’s austerity drive.
It suggests so-called policy tightening every decade for the next 50 years would be needed to get borrowing under control, predicting this would be needed at a scale of 1.9% of GDP – equivalent to £39 billion each decade.
Around a quarter of this is down to the June NHS announcement, it said.
While the OBR said a one-off hit of 5.2% of GDP – £111 billion in today’s money – in 2023/24 could get public sector debt down to around 40% of GDP in 2067/68, it would start to rise after that date.
The OBR said: “Tightening policy by 1.9% of GDP a decade would see the debt ratio fall more slowly to begin with, but the overall tightening would be large enough to stabilise the debt ratio at around the target level and prevent it from taking off again.”
On the shorter term outlook, the OBR warned that Chancellor Philip Hammond’s target to balance the books by the middle of the next decade was “challenging”.
It said the budget was facing pressure from an ageing population on health, social care and state pensions spending.
“On current policy we would expect the budget deficit to widen significantly over the long term, putting public sector net debt on a rising trajectory as a share of national income. This would not be sustainable,” it said.
But the OBR said the Government would be facing a public finances headache, regardless of the extra NHS funding.
It said: “The big picture of upward pressure from health costs and ageing is common to many advanced economies and would still be seen in the UK even if the Government fully finances the June health announcement.”