CashNews.co
By David Milliken
LONDON (Reuters) -British public debt is likely to soar to triple its current level over the next 50 years if future governments do not take action, due to pressures from an ageing population, climate change and geopolitical risks, a watchdog said on Thursday.
The Office for Budget Responsibility (OBR) said debt was on course to rise from nearly 100% of annual gross domestic product now to 274% of GDP by the mid 2070s, and could top 300% of GDP due to other risks – similar to the forecast it gave last year.
OBR board member David Miles, a former Bank of England policymaker, said this scale of debt increase would not be sustainable.
“With unchanged policies and with growth mediocre-to-poor as it has been over the last couple of decades, something’s got to give,” he told a news conference.
Under the OBR projections, which are based on recent demographic trends and policy as it stood shortly before a national election in July, public spending would rise to more than 60% of GDP over the next 50 years. Spending is about 45% of GDP now, its highest sustained level since the 1970s.
Public spending needs would be reduced if there was global action to limit climate change – which might trim debt levels by 10 percentage points – or if there was improved public health, which might lower debt levels by 40 percentage points.
However, the biggest gains would come if Britain could restore its economic productivity growth rates to the level before the financial crisis, which would enable debt to stay below 100% of GDP over the next 50 years.
BUDGET STRAINS
The OBR will publish a more detailed outlook for Britain’s public finances over the next five years on Oct. 30, alongside new finance minister Rachel Reeves’ first budget since the centre-left Labour Party swept to power in the July election.
Reeves has said tax rises are likely and blamed the previous Conservative government for leaving a 22 billion pound ($29 billion) hole in the public finances.
The OBR said it would be wrong to pin Britain’s difficult long-run fiscal situation on any one government and said most advanced economies faced similar problems.
Earlier this year, the United States’ Congressional Budget Office also forecast a big rise in debt over the next 30 years.
“The fiscal position of the government at any point in time makes less of a difference compared to those enormous pressures on the public finances that emerge in a 50-year period from things like an ageing society (or) from rising interest costs,” OBR Chair Richard Hughes said.
The OBR said the biggest change since its last forecasts was higher immigration. It assumes this will continue, in line with other official forecasts, increasing Britain’s population to 82 million by 2074 from 68 million, in contrast to a fall to 66 million in its 2022 forecast.
Net immigration delayed the impact of an ageing population, but the scale of the gain depended heavily on migrants’ average earnings, and how many migrants returned to their country of origin before they themselves grew old, the OBR said.
($1 = 0.7667 pounds)
(Reporting by David Milliken; editing by William James, Kylie MacLellan and Gareth Jones)