The UK should take early action to prevent debt from moving onto an unsustainable and ever-rising path, the Office for Budget Responsibility (OBR) has warned. In its latest annual fiscal risks and sustainability report, the OBR projected that long-term population changes and economic trends will pressure government spending.
Unsustainable debt paths
In nearly all scenarios explored, debt eventually moves onto an unsustainable and ever-rising path, the OBR said. It stressed that it is not plausible for the UK or any other country to remain on such paths because they imply that debt will ultimately grow explosively.
Baseline scenario: debt to soar
Under its baseline scenario, rising borrowing each year results in UK debt levels soaring from about 95% of gross domestic product (GDP) in 2030-2031 to around 300% of GDP by 2075-2076. The OBR emphasised that its scenarios should not be seen as forecasts, as it is almost certain that future governments will have to take action to prevent them.
Call for early action
The OBR concluded that unsustainable fiscal outcomes that may not occur for some years are today's challenge, not tomorrow's. The degree of tightening required to prevent debt from following an unsustainable path increases if delayed to future years, making it more costly and placing more burden on future generations.
Drivers of spending pressure
Due to elevated borrowing, the UK has experienced one of the largest increases in government debt of any advanced economy over the past two decades. An ageing population will help drive up spending on health, social care, and state pensions. Other key pressures include defence spending and public investment to support net zero commitments. Primary government spending (excluding debt interest) is projected to rise from 40% of GDP in 2030-2031 to 49% by 2075-2076.
Tax receipts under pressure
Tax receipts could come under pressure in the long run as income from emissions-related taxes, largely fuel duty, reduce, the OBR said.
Government response
A spokesman for HM Treasury said: We have the right economic plan to deal with economic shocks. Our plan to reduce the deficit has been endorsed by the IMF and the OBR forecast that it will fall every year this parliament, meaning we will be borrowing less than the G7 average. This Government has remained committed to protecting households and businesses through providing economic stability via our non-negotiable fiscal rules while protecting over a £120 billion increase in capital spending.
