Cayman Islands, Caribbeanand International News
Saturday, Apr 01, 2023

UK’s ‘unsustainable’ debt could reach 320% of GDP in 50 years, OBR warns

UK’s ‘unsustainable’ debt could reach 320% of GDP in 50 years, OBR warns

Taxes ‘must be raised to offset mounting cost of ageing population and falling fuel income’
Britain’s public finances are on an “unsustainable” long-term path with a debt burden that could more than treble without further tax rises to cover the mounting cost of an ageing population and falling fuel duties, the Treasury’s independent forecaster has warned.

The Office for Budget Responsibility said that if economic shocks continue to hit the public finances, debt is on course to reach almost 320% of annual national income (GDP) in 50 years’ time – up from 96% now – unless successive governments raise revenues to offset rising costs.

“The pressures of an ageing population on spending and the loss of existing motoring taxes in a decarbonising economy leaves public debt on an unsustainable path in the long term,” the OBR said.

In its annual health check of the public finances, the OBR said the government had already spent as much this year – 1.25% of GDP – to help households cope with the cost of living crisis as it had supporting the economy through the 2008 financial crisis.

If energy prices remained high over the next year and ministers continued extending this support, government borrowing would surge by £40bn in 2023-24.

Richard Hughes, the OBR chair, said the UK’s debt burden had increased by £1tn above forecasts 20 years ago, following a series of economic shocks – and there was no reason to think these would stop.

Interest rates are already beginning to rise, increasing government borrowing costs, while an ageing population adds a further burden to Whitehall spending departments, especially the health service.

“Many threats remain, with rising inflation potentially tipping the economy into recession, continued uncertainty about our future trading relationship with the EU, a resurgence in Covid cases, a changing global climate, and rising interest rates all continuing to hang over the fiscal outlook,” the OBR said.

The switch to electric vehicles in the run-up to the promised UK ban on new petrol and diesel-powered cars from 2030 would be another hit to revenues over successive decades. Fuel duties are now a big source of tax revenue, while domestic electricity is relatively lightly taxed.

Undermining claims by some Tory MPs that tax cuts would spur economic activity and improve the outlook, the OBR warned there was no proof of this.

“Tax cuts don’t pay for themselves and would not improve the long-term financial position,” said the OBR’s chief of staff, Andy King. “In every case I can think of, when we look at tax cuts, the direct fiscal cost of cutting that tax outweighs the indirect fiscal benefit of improved economic activity.”

The OBR’s central forecast shows debt as a share of GDP falling over the next 20 years as spending on education decreases because of a lower birthrate, and slower increases in life expectancy reduce spending on state pensions.

However, even without successive economic shocks, the UK’s debt-to-GDP ratio is expected to rise to 267% of GDP in 50 years’ time.

To return that to its pre-Covid level of 75% would require extra tax rises or spending cuts of 1.5% of GDP, or £37bn every decade for the next 50 years, the OBR said.

In the forecaster’s worst-case scenario, debt could hit 430% of GDP in 50 years if Britain raised defence spending to 3% of GDP from 2%, experienced a big one-off hit from a cyber-attack, and faced persistent damage from a global trade war.

Before quitting as Conservative party leader, Boris Johnson pledged to increase defence spending to 2.5% of GDP and hinted that he may demand even higher spending to protect the UK from global military threats.

Hughes said it was understandable that governments should consider increases in defence spending now that the geopolitical and economic outlook was becoming increasingly uncertain. He said it meant the need to protect the public finances was likely to involve more trade-offs.

“Some risks are more uncertain. Energy prices could fall back rather than staying high if geopolitical tensions ease; and the process of global economic integration could be revived. And some threats are as yet largely unknown – as Covid was three years ago,” he said.

“But the lesson from the 20 years since the UK produced its first long-term public finances report is that all these risks need to be understood and mitigated if we are to safeguard fiscal sustainability in what appears to be an increasingly risky world.”

Related Articles

Don’t Dismiss China’s Peacemaking Bid
China and Brazil have signed a new deal that will allow them to trade in their own currencies, bypassing the US dollar as an intermediary
Elon Musk and Others Call for Pause on A.I., Citing ‘Profound Risks to Society’
Nashville style execution
“We've had evidence prior to the pandemic that masks were largely ineffective at preventing community transmission of influenza “
Former Starbucks CEO Howard Schultz:
Former Starbucks CEO Howard Schultz rejects being labeled a "billionaire"
Jamie Dimon is being deposed over JPMorgan Chase role in Epstein lawsuits
Brand new security footage has just been released to the public showing the Active shooter Audrey Elizabeth Hale drove to Covenant Church School in her Honda Fit this morning, parked, and shot her way into the building
U.S. charges FTX's Bankman-Fried with paying $40 million bribe
Fallen 'Crypto King' Who Owes Millions to Investors Was Kidnapped and Tortured
Regulators blame social media for SVB's rapid collapse: 'Complete game changer'
AOC explains why she opposes banning TikTok
UK: Humza Yousaf replaces Nicola Sturgeon as SNP leader and first minister in Scotland
In a dramatic U-turn against His Government: Judicial Reform Legislation Must Be Halted, Says Israeli Defense Minister Yoav Gallant
Gordon Moore, a co-founder of Intel Corporation, died at 94
Powell: Silicon Valley Bank was an 'outlier'
Donald Trump arrested – Twitter goes wild with doctored pictures
NYPD is setting up barricades outside Manhattan Criminal Court ahead of Trump arrest.
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
Home Secretary Suella Braverman tours potential migrant housing in Rwanda as asylum deal remains mired in legal challenges
Paris Rioting vs Macron anti democratic law
'Sexual Fantasy' Assignment At US School Outrages Parents
Credit Suisse to borrow $54 billion from Swiss central bank
Russian Hackers Preparing New Cyber Assault Against Ukraine
Jeremy Hunt insists his Budget will get young parents and over-50s back into work
If this was in Tehran, Moscow or Hong Kong
TRUMP: "Standing before you today, I am the only candidate who can make this promise: I will prevent World War III."
Mexican President Claims Mexico is Safer than the U.S.
A brief banking situation report
Lady bites police officer and gets instantly reaction
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
Silicon Valley Bank exec was Lehman Brothers CFO
In a potential last-ditch effort, HSBC is considering a rescue deal to save Silicon Valley Bank UK from insolvency
BBC Director General, Tim Davie, has apologized, but not resigned, yet, following the disruption of sports programmes over the weekend
Elon Musk Is Planning To Build A Town In Texas For His Employees
The Silicon Valley Bank’s collapse effect is spreading around the world, affecting startup companies across the globe
City officials in Berlin announced on Thursday that all swimmers at public pools will soon be allowed to swim topless
Fitness scam
Market Chaos as USDC Loses Peg to USD after $3.3 Billion Reserves Held by Silicon Valley Bank Closed.
Senator Tom Cotton: If the Mexican Government Won’t Stop Cartels from Killing Americans, Then U.S. Government Should
Banking regulators close SVB, the largest bank failure since the financial crisis
The unelected UK Prime Minister Rishi Sunak, an immigrant himself, defends new controversial crackdown on illegal migration
Man’s penis amputated by mistake after he’s wrongly diagnosed with a tumour
In a major snub to Downing Street's Silicon Valley dreams, UK chip giant Arm has dealt a serious blow to the government's economic strategy by opting for a US listing
It's the question on everyone's lips: could a four-day workweek be the future of employment?
Is Gold the Ultimate Safe Haven Asset in Times of Uncertainty?
Spain officials quit over trains that were too wide for tunnels...