The Office for Budget Responsibility (OBR) has sounded the alarm over the UK's public debt trajectory, warning that it will become unsustainable within the next few decades unless immediate action is taken. The nation's ageing population and increased defence spending are set to put immense pressure on the public finances, with state pension expenditure projected to surge by 4% of GDP to 9% over the next 50 years, largely driven by the 'triple lock' mechanism. This exponential growth could be mitigated if state pension increases were linked solely to average earnings, potentially saving 2% of GDP.
Healthcare spending is also expected to rise dramatically, from 8% of GDP to 13% by 2075, primarily due to the increasing proportion of older people in the population. However, improved productivity within the health sector could help mitigate this growth. Furthermore, the government's commitment to increase defence spending to 3.5% of GDP would necessitate an additional £28 billion annually, despite recent funding announcements.
The OBR's baseline projection indicates that even with the current fiscal plans of Chancellor Rachel Reeves, which are expected to stabilise the debt-to-GDP ratio at approximately 95% by 2030-31, the ratio will begin to accelerate again from the mid-2030s. Tom Josephs, a member of the OBR's budget responsibility committee, highlighted that this acceleration could occur even sooner if the government deviates from its ambitious deficit reduction plans or if the economy faces another significant shock.
Josephs urged earlier intervention, stating that it would result in less dramatic adjustments and asserting that "the significant uncertainty around these projections should not be used as an excuse for inaction." He warned that delaying fiscal adjustment until the middle of the century would necessitate changes twice as large as those needed if action were taken in the early 2030s.