Ageing population means UK must find £65bn in cuts and taxes

The UK government must find £17 billion of additional spending cuts or tax hikes at the end of its current austerity plan or eventually face a £65bn hole in the public finances, the official forecaster warned yesterday.

In its annual fiscal sustainability report, the Office for Budget Responsibility (OBR) said the additional £17bn in savings by the year to April 2018 would be needed to get Britain’s debt back to pre-crisis levels by 2061.

The country’s ageing population will increase the budget deficit by £65bn if nothing is done, the OBR said. This comes on top of Chancellor George Osborne’s £123bn, seven-year fiscal consolidation programme, which includes hundreds of thousands of public sector job losses, an overhaul of the welfare system and a higher pension age.

Chief Treasury Secretary Danny Alexander said the OBR analysis showed the government’s plans were “essential to restoring long-term sustainability in the public finances”.

The ageing population is the key driver behind the pressure on public finances, as spending on healthcare and pensions increases. The OBR report said: “In the absence of offsetting tax increases or spending cuts this would eventually put public sector net debt on an unsustainable upward trajectory.

“It is likely that such a path would lead to lower long-term economic growth and higher interest rates, exacerbating the fiscal problem.”

The OBR said the budget balance, the difference between revenues and spending, was projected to move from a surplus of 1.7 per cent of GDP in 2016-17 to a deficit of 2.6 per cent of GDP in 2061-62. To maintain the surplus of 1.7 per cent, a further £65bn in spending cuts and/or tax hikes is needed.

JAMIE GRIERSON