Act soon to change ‘unsustainable’ direction of UK debt, OBR warns
Summary
The UK’s independent economic forecaster, the Office for Budget Responsibility (OBR), warns that government debt will grow unsustainably by the 2040s without action. Rising costs for defence, health care, and pensions, especially as the population ages, are driving this increase, and early steps to control spending would be less costly than later fixes.Key Facts
- The OBR expects UK government debt to rise on an unsustainable path starting around the 2040s if no changes are made.
- Defence spending is planned to increase by £28 billion a year to meet the government’s goal of 3.5% of GDP on defence.
- State pension costs could nearly double, from 5% to 9% of GDP in 50 years, partly due to the “triple lock” policy that increases pensions by the highest of earnings, inflation, or 2.5%.
- Changing pension increases to track average earnings could save about 2% of GDP by 2075.
- Health spending is projected to grow from 8% to 13% of GDP by 2075 due to more older people needing care.
- The debt-to-GDP ratio is expected to stabilize near 95% by 2030-31 but then start rising again by the mid-2030s.
- Acting early to reduce the deficit would be less costly and easier than delaying and needing larger cuts later.
- The OBR currently lacks a permanent director since December, with a nominee still awaiting approval.
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