UK debt will grow ‘explosively’ if not addressed by governments, warns OBR

Anna Wise, Press Association Business Reporter

The UK should take early action to prevent debt from moving onto an “unsustainable and ever-rising path”, the UK’s official forecaster has warned.

The Office for Budget Responsibility (OBR) predicted that long-term population changes and economic trends will help put pressure on government spending.

The OBR set out the findings from a series of projections in the latest annual fiscal risks and sustainability report.

“In nearly all of the scenarios we explore, debt eventually moves onto an unsustainable and ever-rising path,” it said in the report.

“We stress that it is not plausible that the UK, or any other country, could remain on any of the unsustainable paths set out in these scenarios, because they imply that debt will ultimately grow explosively.”

The OBR stressed that its scenarios should not be seen as forecasts because it was “almost certain” that future governments would have to take action to prevent them from happening.

But it concluded that “unsustainable fiscal outcomes that may not occur for some years are today’s challenge not tomorrow’s”.

“The degree of tightening required to prevent debt from following an unsustainable path increases if it is delayed to future years,” the report warned.

“This would make it more costly and place more of a burden on future generations.”

Due to elevated borrowing, the UK has experienced one of the largest increases in government debt of any advanced economy over the past two decades, the OBR said.

Looking ahead, forecasts showed an ageing population will help drive up spending on areas such as health, social care and state pensions.

Other key spending pressures identified in the report include defence spending and public investment to support net zero commitments.

Primary government spending, excluding debt interest, is projected to rise from 40% of gross domestic product (GDP) in 2030-2031 to 49% by 2075-2076, according to its baseline scenario.

Meanwhile, tax receipts could come under pressure in the long run as income from emissions-related taxes reduce, largely fuel duty, the OBR said.

A spokesman for HM Treasury said: “We have the right economic plan to deal with economic shocks.

“Our plan to reduce the deficit has been endorsed by the IMF (International Monetary Fund) and the OBR forecast that it will fall every year this parliament, meaning we will be borrowing less than the G7 average.

“This Government has remained committed to protecting households and businesses through providing economic stability via our non-negotiable fiscal rules while protecting over a £120 billion increase in capital spending.”