In a long-planned report, the government’s independent fiscal watchdog said Thursday that geopolitical tensions and the energy crisis highlighted emerging risks to public finances in addition to existing pressures from an aging population. The watchdog’s message will be worrying for many of the challengers to become the next Prime Minister and leader of the Conservatives, who have called for lower taxes to boost the UK’s economic growth rate. The OBR praised the tax increases overseen by former chancellor Rishi Sunak as allowing the UK’s fiscal position for the next 20 years or so to be unaffected by the Covid-19 pandemic. He also noted that demographic pressures were more favorable than previously thought for public finances. But the Fiscal Risks and Sustainability report contained a warning for MPs insisting on lower taxes. The OBR said existing demographic pressures and new fiscal risks “add a challenging outlook for this and future governments as they steer public finances through inevitable future shocks while managing multiple slow building pressures”. In its projections, the watchdog showed public debt rising steadily above 100 percent of GDP by mid-century and rising further after that to reach twice GDP by the mid-2060s. The OBR said around £37bn of additional tax rises or public spending cuts each decade were needed to stabilize public finances in the long term. “Bringing the debt back to 75 percent of GDP – the level it was fixed at in the government’s pre-pandemic March 2020 budget – would require taxes to increase, spending to decrease or a combination of both, amounting to 1, 5 percent of Additional GDP tightening at the beginning of each decade over the next 50 years,” he said. If geopolitical pressures increased, those tax increases would need to be larger, the watchdog added, as would if energy prices soared even higher or remained stubbornly at current high levels. In a riskier political environment, the OBR said government action to support vulnerable households with the cost of living would further undermine public finances. “Additional fiscal support for households of the type seen this year would limit the short-term hit to household incomes, but only at the expense of transferring higher public debt to future households,” he warned.
