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 predicted that long-term population changes and economic trends will pressure government spending, with almost all scenarios showing public finances eventually moving onto an unsustainable path where debt will ultimately grow explosively.
Scenarios and Uncertainties
The OBR stressed that its scenarios should not be seen as forecasts because it is almost certain that future governments will have to take action to prevent them from happening. However, it emphasized that addressing debt levels is today's challenge, not tomorrow's. The degree of tightening required to prevent debt from following an unsustainable path increases if it is delayed to future years, the report warned, making it more costly and placing more of a burden on future generations.
Drivers of Rising Debt
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, the OBR said. Looking ahead, an ageing population will help drive up spending on areas such as health, social care, and state pensions. Other key spending pressures identified include defence spending and public investment to support net zero commitments.
Spending and Revenue Projections
Primary government spending, excluding debt interest, is projected to rise from 40% of gross domestic product (GDP) in 2030-2031 to 49% by 2075-2076, according to its baseline scenario. Meanwhile, tax receipts could come under pressure in the long run as income from emissions-related taxes, largely fuel duty, reduces, the OBR said.
