Britain's ageing population and strained healthcare system means an extra £19bn of spending cuts or tax rises are needed to combat an 'unsustainable' pressure on the nation's public finances, the official forecaster warned.
The Office for Budget Responsibility (OBR) said the Government would need to find the additional savings in the year to April 2019 on top of the current £153bn in austerity measures to get debt down to 40% of economic output.
If no action is taken, the burden of an ageing population in terms of pensions and healthcare will wipe out much of Chancellor George Osborne’s spending cuts, leaving the UK with a ï¿½65bn hole in its finances, according to the OBR.
The OBR said the move to a single-tier state pension had slightly eased the pressure on public sector debt, but added that spending on healthcare was the biggest spending pressure over the next 50 years.
The OBR said the cost of the state pension was predicted to rise from 5.8% of GDP to 8.4% of GDP as the population ages, even with the introduction of the new flat rate payment system and increase in retirement age to 67 taken into account.
Healthcare spending is expected to increase from 7% of GDP to 8.8% of GDP, while long-term social care costs are set to rise from 1.3% of GDP to 2.4% of GDP.
The OBR also warned that declining North Sea oil reserves will take its toll, with oil and gas revenues expected to plunge from 0.4% of GDP now to almost negligible levels – at 0.03% of GDP by 2040.
But action taken so far by the Government, including an extra year of spending cuts to 2017-18 and the single-tier state pension, is helping to offset some of the pressures.
Robert Chote, chairman of the OBR, said on presenting the report: “Since last year, the underlying deficit and debt path look less favourable, but this and the costs of long-term care reform are likely to be offset by the Government’s announcement of additional spending cuts in 2017-18 and savings from the single tier pension.”
In a written statement, Chief Secretary to the Treasury Danny Alexander said the OBR’s report shows that without the steps taken over the past year, public borrowing would be around 50% of GDP higher in 50 years’ time.
Since last year, the underlying deficit and debt path look less favourable