Efforts to put the UK’s public finances on a sustainable footing after recent global shocks have met with limited and temporary success in recent years, leaving the UK with the sixth-highest debt, fifth-highest deficit, and third-highest borrowing costs of the 36 advanced economies in the world.
That’s according to the UK’s Office for Budget Responsibility (OBR).
The OBR said: “Against this more vulnerable backdrop, the risks to the fiscal outlook are mounting, including: the sustainability of state and private pensions and the sector’s demand for government debt; risks to assets and liabilities on the public balance sheet and the Government’s new net financial liabilities target; and the combined costs of climate damage and the net zero transition.”
Over the past two decades, the size and complexity of the UK government’s financial balance sheet has expanded considerably, said the OBR.
Since 2004-05, the UK government’s public sector net financial liabilities (PSNFL) figure has more than doubled from 33% of GDP to 83% of GDP last year.
“Financial liabilities have more than doubled as a share of GDP from 57 per cent in 2005-06 to 132 per cent at the end of 2024-25,” said the OBR.
“Much of this comes from an increase in government bond (gilt) issuance to finance the large and persistent deficits over much of this period.
“Since 2008, a significant proportion of these liabilities have been in the form of Bank of England reserves issued to finance the purchase of gilts under quantitative easing, and to issue loans under the Term Funding Scheme (TFS) and its predecessors.
“Both these schemes are now unwinding, though these reserves still stood at £713 billion at the close of 2024-25.
“The final significant financial liabilities are the pension promises of funded public sector pension schemes, mainly the Local Government Pension Scheme, which have increased steadily over this period from 15 to 19 per cent GDP.”