Debt and age concerns see UK soar up league of 'high risks'

Published on Thursday 4 March 2010 21:40

AN AGEING population and spiralling debts have sent the UK soaring up an international league of risky public finances.

The UK is now a "high risk" country after rising 36 places from 63 to 27 in the Fiscal Risk Index (FRI) compiled by risk adviser Maplecroft.

Britain was ranked a medium risk in 2009, but has risen up the FRI – which measures indicators such as debt and public spending – due to its older population and the increased borrowing taken on to tackle the recession.

Massive government borrowing has become a major issue due to a debt crisis currently engulfing some European countries.

"The burden of welfare provision for the elderly presents a longer-term problem in Britain than the fall-out of recessionary spending," said Maplecroft chief executive Alyson Warhurst.

Countries such as the UK are seen as vulnerable due to a diminishing workforce, which will drive down revenues in the long term as spending needs rise.

According to official forecasts, public borrowing will hit a record 178 billion this year, although the government has committed to halve the UK's structural budget deficit by 2015.

Italy was ranked as having the riskiest public finances for the second year in a row, with nine European countries appearing in the top ten, including Croatia, Hungary and Portugal. Germany and Japan are rated as a higher risk than the UK as they have an even higher projected ageing profile.

Maplecroft analyst Fiona Place said governments could struggle to cope with the escalating costs of welfare for the elderly.

She said: "Mounting strains will be put on social security and pension systems in all countries and employers across all sectors may well be called upon to contribute and facilitate private provisions.

"In high and extreme-risk nations, corporate pension schemes and health programmes could become necessary to preserve productivity."