The Office for Budget Responsibility (OBR) said the government faces a debt three times its current level due to rising costs from an aging population and falling future tax revenue from motor fuels. Debt is set to reach almost 320% of GDP in 50 years – up from 96% today – if successive governments do not tighten fiscal policy, the agency said in its annual health check of public finances. It is projected to rise to more than 100% of GDP in 30 years. Returning debt to 75% of GDP – the level in the government’s budget before the pandemic – “would require taxes to rise, spending to fall or a combination of both”, the OBR said. This would require cuts of 1.5% of GDP – £37bn a year in today’s terms – at the start of every decade over the next 50 years, he added. Public debt is now at levels not seen since the early 1960s, having risen by 2.3 percentage points of GDP last year. “Spending pressures from an aging population and the loss of existing car taxes in a decarbonised economy leave public debt on an unsustainable path in the long term,” the OBR said. Read more: Government hands over £7.6bn in record interest payments on public debt The government is set to lose a huge source of tax revenue as it moves to ban the sale of new petrol and diesel cars from 2030. Electricity is taxed less heavily. The UK’s aging population brings with it additional healthcare, pension and social care costs. The OBR also said the government has spent as much so far this year to help households with the cost of living crisis – 1.25% of GDP – as it did to support the economy during the financial crisis. Listen to and subscribe to The Ian King Business Podcast here. Public debt is now more than double what the OBR expected 20 years ago. The OBR said risks to the public finances include a rise in inflation, which could push the economy into recession, “continued uncertainty about our future trading relationship with the EU” and a resurgence of COVID cases. Other factors are rising interest rates and rising geopolitical tensions, exemplified by Russia’s war in Ukraine and manifested in trade barriers between countries. The government spent £7.6bn in interest payments servicing its debt in May, well above the £5.1bn forecast by the OBR.
