Warning public debt could soar as population ages
Getty ImagesThe UK's public debt could soar as the population ages and tax receipts fall, the government's independent forecaster has warned.
The Office for Budget Responsibility (OBR) said debt could rise to more than 300% of the size of the economy by 2070, up from around 100% currently.
Climate change and geopolitical tensions also posed "significant" risks to government finances, it added.
But it called current government plans to reduce debt "relatively modest".
It comes as separate figures show the UK economy has barely grown since 2019 before the pandemic.
Commenting on the OBR report, Chancellor Jeremy Hunt said the government would take "difficult but responsible" decisions on the public finances.
Public debt is the stockpile of money borrowed by the government over the years to fund its spending.
Mr Hunt has set a target of getting underlying debt to fall in five years' time.
In a report, the OBR said the 2020s were turning out to be a "very risky era for the public finances".
It said the pandemic, cost-of-living crisis and recent interest rate rises had hit the economy and driven up government borrowing costs.
As a result, it said:
- government borrowing was now at its highest level since the mid-1940s
- the stock of government debt at its highest level since the early 1960s
- and the cost of servicing that debt the highest since the late 1980s.
From this "vulnerable position", it said, the government now faced growing costs from an ageing society.
This will drive up pension spending in the short term, and by 2070 shrink the ratio of working age people to retired people.
"This puts downward pressure on tax receipts, upward pressure on primary spending, and leaves a growing gap between the two," the OBR said.
The forecasting body said that the government's debt interest costs were also set to surge. And it said borrowing would rise as government spending on defence increased to meet "growing security threats in Europe and Asia".
Decarbonising the economy to reach net zero by 2050 would also cost the government billions in extra spending, it said.
All of these factors could lead to the size of the UK's debt compared to the size of the economy - as measured by the debt-to-GDP ratio - tripling over the next 50 years, the OBR said. It added that unforeseen shocks or unfunded policies could drive it even higher.
The OBR added that the government's current plan for stabilising and then reducing debt - as a share of GDP by 2027-28 - was "relatively modest by historical and international standards".
Commenting, Mr Hunt said the government would take "difficult but responsible decisions on the public finances, including public sector pay, because more borrowing is itself inflationary".
But Rachel Reeves, Labour's shadow chancellor, said the OBR's report showed "just how far we are falling behind our peers".
"There are serious decisions to be made by this Tory government to restore some security in our economy, to get a grip on inflation, and to stop people's bills rising."
Gas prices
The OBR's report also warned gas prices are expected to remain high until at least 2025.
Soaring oil and gas prices have contributed to the rapid pace of general price rises, putting struggling households under pressure.
After a massive 13-fold price jump in the wake of Russia's invasion of Ukraine, gas prices have fallen back - but are still more than twice as expensive as before.
The OBR said the hike in gas prices had made renewable energy cheaper than gas over its life-time for the first time.
However, despite this, it said there was "little sign of a step-change in renewable energy investment in the UK".
Planned UK government investments in green technologies will not get the country to net zero carbon emissions by 2050, the OBR said.