The UK’s Office for Budget Responsibility (OBR) said on Thursday that UK government debt is projected to almost triple from under 100% of GDP to 274% of GDP over the next 50 years “based on current policy and the latest demographic projections.”
The OBR said in its “Fiscal risks and sustainability” report: “The past two decades have seen the UK economy hit by a succession of extraordinary shocks, in the form of a global financial crisis, a pandemic, and an energy crisis.
“The public finances have emerged from these shocks under strain. Deficits have averaged just under 5 per cent of GDP since the start of the century. This has caused debt to more than triple as a share of GDP to 98.1 per cent of GDP by March 2024, its highest level since the early 1960s.
“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 …
“Looking ahead, in addition to the inevitability of further shocks, governments in the UK and around the world face a number of longer-term pressures that are likely to weigh on their public finances further.
“These include … 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, including the fiscal costs of completing the transition to net zero while also coping with damage from rising temperatures and more severe weather; and … rising geopolitical tensions, with both the previous and current UK Governments aspiring to raise defence spending to 2.5 per cent of GDP …
“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.
“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.
“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.”