Prime Minister Rishi Sunak vows to cut debt Credit: Geoff Pugh
Government needs to raise over £100bn to save Mountain of Debt The UK is spinning out of control, the fiscal watchdog has warned, suggesting a sharp tax hike or spending cut is on the horizon.
The Office for Budgetary Responsibility (OBR) said pressure from an aging population, rising interest rates and the move to zero meant that the UK's £2.5 trillion debt stock would skyrocket over the coming decades.
Debt is expected to rise from 100% of GDP today to over 300% within 50 years. without spending cuts or tax increases.
The analysis highlights the stark choices that Rishi Sunak or Labor leader Sir Keir Starmer will have to make after the next election. The prime minister has vowed to keep debt low even as some members of the Conservative Party are demanding tax cuts to spur growth.
Richard Hughes, chairman of the OBR, said: “Obviously the current policy settings are not cannot be stable, left where they are.”
The OBR said the UK public finances are likely to remain in a “very risky” position following a series of recent shocks including the pandemic, the war in Ukraine, a deep cost-of-living crisis and rising borrowing costs.
Mr Hughes said that a string of problems has “accelerated the fiscal pressure” the UK is facing, forcing tax hikes or spending cuts before the end of the decade.
Keeping debt from rising above 100% of GDP in the long term will require tax increases or spending cuts on about £110 billion in today's money.
The Inland Revenue has warned that an aging British society is putting strong pressure on public finances.
Mr Sunak's commitment to a triple pension lockdown will result in spending £23bn a year more by 2027 compared to 2027, according to OBR. with the start of the decade.
Spending is rising as inflation causes large increases. in the state pension under the triple lock guarantee. The government has been forced to increase payments by 10.1% this year to keep up with rising prices.
0907 An aging population
A wave of baby boomers, who will retire in the coming years, will also increase spending.
Maintaining the triple lockdown will increase Britain's debt stock by an amount equivalent to 36% of GDP over the next 50 years, the OBR said.
Another burden on public finances is the post-pandemic resurgence of chronic illness, which has increased annual payments by £6.8bn.
An additional 440,000 people now claim an average of £10,000 a year each because of ill health, adding £6.8bn to the Social Security bill this tax year and bringing the total number of people inactive for health reasons to up to 2.6 million
The government is also losing £8.9bn in tax revenue as a result of non-payment of income tax and national insurance payments from the group. The deficit has boosted annual borrowing by £15.7bn, the OBR warned in its Fiscal Risk and Sustainability Report.
Britain's growing reliance on benefits. a hole in public finances by the end of the decade.
By the end of the decade, switching to electric vehicles will cost £13bn in forgone fuel taxes, and “the public investment needed to support the decarbonization of energy, buildings and industry could reach £17 billion a year” by 2030.
The UK is also at risk of gas price spikes in the coming decades after failing to increase investment in renewables following the Russian invasion of Ukraine.
Our watchdog said: “We continue to depend on gas for the current level could, in a bad scenario, be as costly in terms of budget as completing the transition to zero.”
Strong warnings from the OBR have been issued as official data show that UK economic growth continues to stagnate. weak. GDP contracted by 0.1% in May due to continued public sector strikes and extra days off to mark the coronation of King Charles.
Chancellor Jeremy Hunt said: remains an anchor for economic growth.
“The best way to resume growth and relieve pressure on families is to bring inflation down as quickly as possible. Our plan will work, but we must stick to it.”
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