UK debt could rise to 300% of GDP warns OBR

UK Central Bank

The public debt of the UK could rise to more than 300% of gross domestic product (GDP) by 2072-73, up from today’s 100%, the UK government’s Office for Budget Responsibility (OBR) has warned.

The OBR said the UK government’s borrowing costs have risen more than in any other Group of Seven (G7) economy and they had been more volatile than at any time in the past 40 years.

“While other governments also face rising interest rates on debts close to or in excess of 100% of GDP, several factors make the UK’s public debt position more vulnerable to some shocks than in the past or in other advanced economies,” the OBR said.

In its annual report on the long-term outlook for UK public finances, the OBR said: “By the end of our medium-term forecast period, we project debt to reach about 100 per cent of GDP, after which it rises to over 300 per cent of GDP by 2072-73.

“If a government wanted instead to keep debt from rising above 100 per cent of GDP over the long term, this would require a permanent increase in taxes and/or cut in spending of 4.4 per cent of GDP in 2028-29.”

The report warned: “The 2020s are turning out to be a very risky era for the public finances.

“In just three years, they have been hit by the Covid pandemic in early 2020, the energy and cost-of-living crisis from mid-2021, and the sudden interest rate rises in 2022, whose consequences continue to unfold.

“This rapid succession of shocks has delivered the deepest recession in three centuries, the sharpest rise in energy prices since the 1970s, and the steepest sustained rise in borrowing costs since the 1990s.

“And they have pushed government borrowing to its highest level since the mid-1940s, the stock of government debt to its highest level since the early 1960s, and the cost of servicing that debt to its highest since the late 1980s.”

The OBR estimated that:

  • as the “baby boom” generation enters retirement and high inflation ratchets up the cost of the triple lock, state pension spending is expected to be £23 billion in today’s terms (0.8% of GDP) higher in 2027-28 than at the start of the decade
  • rising take-up of electric vehicles is expected to cost £13 billion a year in forgone fuel duty by 2030, while the public investments needed to support the decarbonisation of power, buildings, and industry could reach £17 billion a year by that date
  • in response to growing security threats in Europe and Asia, the UK government has said it aspires to increase defence spending – for the first time in seven decades – from 2% to 2.5% of GDP, at a potential cost of £13 billion a year in today’s terms