Fiscal watchdog warns UK government debt to reach 310% of GDP by 2070

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The Budget Responsibility Office has warned that Britain’s public finances are in a “very perilous” state, and government debt is on track to reach 310 per cent of GDP over the next 50 years.

Britain was “more vulnerable” than in the past or compared to other advanced economies when it comes to public debt, which passed 100% of GDP for the first time since 1961 in May, the fiscal watchdog said in a report on Thursday. percent exceeded.

“The pressure on public finances has increased significantly since the last time we did one of these projections (in 2022),” OBR chair Richard Hughes said.

“Interest rates are rising, inflation is rising, and the demographic change is happening faster than we thought, with more people dropping out of the workforce,” he said. “All of these are putting a huge strain on the UK public finances and (doing so) much more quickly than in other countries.”

Fiscal risk report finds the sharp shocks over the past three years have led to the UK’s deepest recession in three centuries, the sharpest rise in energy prices since the 1970s and the highest borrowing costs since the 1990s has given rise to the fastest growth in

These events have pushed government borrowing to its highest level since the mid-1940s, the national debt to its highest level since the early 1960s, and the cost of repaying that debt nearly 40 years. has reached its peak.

Such developments have dampened hopes of tax cuts in the medium term. Chancellor Jeremy Hunt recently ruled out major pre-election cuts in an interview with the Financial Times.

The OBR said challenges included £15.7bn of additional borrowing linked to workplace inactivity due to long-term illness since the pandemic, a trend not seen in most other advanced economies.

The country also faces a £23 billion increase in state pension spending by 2027–28 compared to the start of the decade, as the “baby boom” group enters retirement.

Additional public investment is also needed to meet the UK’s 2050 net zero carbon emissions target. The OBR estimates that around £327bn will be needed, but the government has so far only committed the equivalent of £22.5bn.

In contrast to growth in France and Germany, UK investment in low-carbon technologies is set to fall by 0.2 per cent of GDP in 2022, confirming Britain’s status as one of Europe’s most gas-dependent economies.

“This leaves us particularly exposed to changes in wholesale gas prices and has already brought considerable fiscal costs,” Hughes said.

The OBR also noted that the UK has the highest proportion of debt linked to inflation of any major advanced economy, which has pushed up debt service costs; short average maturity of the stock of government bonds; And private investors have more debt in their hands than most G7 countries combined.

Rachel Reeves MP, Labour’s shadow chancellor, said: “This report shows how far behind our peers we are, how exposed our economy is and again highlights the government’s energy bills to help reduce has failed to act in areas like security.” ,

Additional reporting by George Parker