Key facts
- Britain will need tax rises or spending cuts equivalent to the entire education budget to prevent government debt from spiraling.
- The Office for Budget Responsibility (OBR) predicts government debt is likely to move onto an unsustainable and ever-rising path.
- An aging population and increasing healthcare spending are identified as key reasons for the unsustainable public finances.
- The OBR assessment indicates current government plans are insufficient to stop debt climbing in the long term.
- To keep public debt at around 95% of economic output, a permanent improvement in the primary balance of 3.8% of GDP is needed by 2031/32.
- Delaying action until the 2050s would require an 8% of GDP improvement in the primary balance.
Britain will require significant fiscal tightening, equivalent to the entire education budget, to prevent government debt from spiraling, according to a new prediction from the Office for Budget Responsibility (OBR).
The independent watchdog's annual assessment of public finances indicated that debt is likely to follow an unsustainable and ever-rising path under most scenarios.
Key factors contributing to this outlook include an aging population and the rapidly increasing costs associated with healthcare.
The OBR's findings highlight the fiscal challenges facing the incoming prime minister, who has pledged to adhere to existing government fiscal rules.
Even if the government's current plans are fully implemented, they are not expected to be sufficient to halt the climb in debt over the long term, leaving limited scope for increased public spending.
To maintain public debt at its current level of approximately 95% of economic output, the government would need to permanently improve its primary balance by 3.8% of GDP in the 2031/32 financial year. This adjustment is larger than the tightening planned over the next five years and is roughly equivalent to total onshore corporation tax receipts or current departmental spending on education.
The OBR warned that delaying these necessary actions would escalate the cost of restoring fiscal sustainability. Postponing measures until the 2050s could necessitate an improvement in the primary balance by 8% of GDP, a figure close to the entire health budget.
However, the OBR noted that faster economic growth, particularly in productivity, could alleviate the pressure. If productivity growth returned to its pre-financial crisis pace, debt could be approximately 120 percentage points of GDP lower by the mid-2070s compared to the baseline scenario, and the required fiscal tightening would decrease to 1.8% of GDP.