Britain's public finances face bleak future of debt, watchdog warns
Prime Services, Government With British Pressure, Finances Sunak’s In Demanding In Are Under Improvements The Already Healthcare, Stretched Public Voters Is Time Rishi At As Minister Strained A Such When
Britain’s public finances are on an unsustainable path and rapidly deteriorating, the UK Treasury’s fiscal watchdog said in a report that highlighted multi-billion-pound demands for spending on defence, climate and health.
The Office for Budget Responsibility said in its fiscal risks report that British public debt will soar to more than 300% of gross domestic product by 2072-73, a scenario deemed “optimistic” given the threat of future shocks.
Stopping debt from rising above 100% of GDP, its current level and the highest since the 1960s, would require tax rises and spending cuts of 4.4% of GDP in 2028-29.
“The pressures on the public finances have mounted considerably since the last time we did one of these projections,” Richard Hughes, chair of the OBR, said at a briefing.
“They’re putting more pressure on our public finances more quickly than you see in other countries so rising interest rates constrain us more quickly than they do in the US, France and Germany,” Mr Hughes said.
The findings underscore the tensions British prime minister Rishi Sunak’s government is under, with voters demanding improvements in strained services, such as in healthcare, at a time when the public finances are already stretched. He is also under pressure from members of the ruling Conservative Party and business groups that are seeking tax cuts.
In a bleak assessment of the country’s long-run finances, the OBR estimated that:
- Retiring baby boomers and higher inflation will cause the country’s pensions bill to rise £23bn (€27bn) by the 2027-28 fiscal year when compared with the start of the decade;
- The spread of electric vehicles will drain £13bn a year in fuel duties from the Treasury by 2030 while public investment to support the shift to net zero emissions may cost £17bn a year by then;
- The outbreak of war in Ukraine and growing security threats in Asia indicates defence spending may rise by £13bn a year in today’s terms — to 2.5% of GDP from 2%.
The OBR said the public finances were on a “very risky” footing after a series of shocks including the covid pandemic, the war in Ukraine and soaring interest rates. It warned the UK’s finances are more vulnerable than many other advanced economies.
The OBR said the Treasury’s finances were especially vulnerable to shocks by it having more inflation-linked debt than peers, shorter maturities and the sharpest rise in borrowing costs of the Group of Seven nations in the last 12 months. It also has more of its debt in the hands of foreign investors than most G-7 countries, leaving it hostage to swings in global sentiment.
“What the series of shocks we faced over the last decade have done have basically accelerated a lot of fiscal pressure at us," Mr Hughes said. “The 2020s are turning out to be a very risky era for the public finances.”
• Bloomberg