The government must act to prevent public debt from rising unsustainably in the coming decades, the Office for Budget Responsibility (OBR) has warned. In its latest fiscal risks and sustainability report, the forecaster said that without policy changes, debt would follow an “unsustainable, ever-upward path” from around the 2040s.
The OBR highlighted defence spending as a key pressure, stating that an additional £28bn a year would be needed to meet the government’s pledge to spend 3.5% of GDP, despite recent funding increases. It also pointed to rising costs in health and pensions, projecting that state pension spending could grow from 5% of GDP to 9% over the next 50 years if current policies remain unchanged. A third of that increase would be due to the triple lock, under which pensions rise by the highest of earnings, inflation, or 2.5%.
Health spending is expected to rise from 8% of GDP to 13% by 2075 as the population ages. The OBR suggested that productivity improvements in the health sector could help constrain that growth. While Chancellor Rachel Reeves’ fiscal plans are expected to stabilise the debt-to-GDP ratio at about 95% by 2030-31, the OBR’s baseline projection shows it accelerating again from the mid-2030s.
Tom Josephs, a member of the OBR’s budget responsibility committee, said earlier action to repair the public finances would make the adjustment less dramatic. “The significant uncertainty around these projections should not be used as an excuse for inaction,” he said. “Unsustainable fiscal outcomes that may not occur for some years are today’s challenge, not just tomorrow’s.” He added that delaying the required adjustment to mid-century would make it twice as costly.
The OBR has been without a permanent director since Richard Hughes resigned in December. Chancellor Reeves’ nominee, economist Jonathan Haskel, has yet to be confirmed in the post.
