OBR Forecast Indicates UK National Debt to Triple in 50 Years
The Office of Budget Responsibility (OBR) has warned that the UK national debt is expected to triple over the next 50 years due to long-term risks to the economy. These risks include climate change, an ageing population, and geopolitical tension, leading to a significant increase in government spending and national debt.
In its latest Fiscal Risks and Sustainability report, the OBR estimates that government spending will surge from 45 to 60 percent of GDP over the next 50 years, with national debt reaching 274 percent of GDP by the late 2030s.
The OBR highlights the uncertainty of these long-term projections, but warns that in most alternative scenarios, there is an upward trajectory in debt. Taking into account further shocks and pressures, the estimated rise in UK debt could exceed 300 percent of GDP.
Chief Secretary to the Treasury Darren Jones described the state of public finances inherited from the previous government as “shocking.” The government is expected to announce tax changes and public spending cuts in the upcoming October budget.
Alleviating the Pressure
To address the economic challenges outlined by the OBR, policymakers need to take measures to reduce public spending and increase revenue. The OBR suggests several measures to alleviate economic pressures.
Limiting the rise in global temperatures to less than 2°C instead of 3°C could reduce the debt-to-GDP ratio by 10 percentage points over the next 50 years. Changes in demographics and an ageing population will put pressure on healthcare spending, but improved health among the population could result in a 40 percent reduction in GDP debt.
The OBR emphasizes the importance of boosting economic growth, stating that every 0.1 percent increase in productivity growth could reduce national debt by 25 percent.
Boosting Revenue
Labour has warned of a “£22 billion black hole” in public finances and plans to raise revenue by closing tax loopholes for UK resident non-domiciled individuals. The government is expected to announce tax changes in the October budget to increase revenue.
Motorists anticipate an increase in fuel duty, with the RAC warning of plans to raise it to 58p a litre. The OBR suggests that Labour may need to raise taxes or cut spending in various scenarios to keep public finances sustainable.
Government borrowing reached £3.1 billion in July, the highest since 2021. Public sector net debt was at 99.4 percent of GDP, levels not seen since the early 1960s.
