Today (Thursday 12th September) the Office for Budget
Responsibility has published its Fiscal Risks and Sustainability
Report. This report provides an assessment of the fiscal risks
and sustainability faced by the UK economy.
In response the Chief Secretary to the Treasury said:
“The OBR has laid bare the shocking state that our public
finances were left in by the previous government. Highest debt
since the 1960s, highest taxes since the 1940s, and debt on track
to be almost three times our GDP.
“That's why this government began work immediately to address the
inheritance with tough choices on spending alongside ambitious
action to drive growth. By fixing the foundations, we will
rebuild Britain and make every part of the country better off.”
Notes to editors
Key quotes from the report:
- The past two decades have seen the UK economy hit by a
succession of extraordinary shocks, in the form of a global
financial crisis, a pandemic, and an energy crisis. The public
finances have emerged from these shocks under strain.
- Deficits have averaged just under 5 per cent of GDP since the
start of the century. This has caused debt to more than triple as
a share of GDP to 98.1 per cent of GDP by March 2024, its highest
level since the early 1960s.
- Public spending is at nearly 45 per cent of GDP in
2023-24 – its highest sustained level since the mid-1970s.
- The previous Government's fiscal plans were based on holding
real growth in public spending below that of the economy, and the
tax take increasing to 37.1 per cent of GDP, which would be its
highest level since the late 1940s.
- Over the next 50 years, public spending is projected to rise
from 45 to over 60 per cent of GDP, while revenues remain at
around 40 per cent of GDP. As a result, debt would rise rapidly
from the late 2030s to 274 per cent of GDP.
- Debt is projected to rise further to over 300 per cent of
GDP, when further shocks and pressures are taken into
account.
- Net interest spending quadruples over the next fifty years
from 2.8 to 11.3 per cent of GDP as the stock of debt rises. This
is exacerbated by the gilt rate now being 0.2 percentage points
above the assumed long-run rate of nominal GDP growth throughout
our projection, unlike in FRS 2022 when it was an average of 1.1
percentage points below nominal GDP growth over the first fifteen
years.
- Boosting the productive potential of the economy, if it does
not simply result in higher public spending, could make the
biggest difference of all, with every 0.1 per cent increase in
productivity growth reducing the rise in the debt-to-GDP ratio by
25 percentage points. A full 1 percentage point increase,
equivalent to a return to pre-financial crisis rates of
productivity growth, could keep debt below 100 per cent of GDP
throughout the next 50 years.
- Our long-term fiscal projections are highly sensitive to
assumptions on long-run growth in economy-wide productivity. To
illustrate its impact, we construct two alternative productivity
scenarios:
- A higher productivity scenario in which productivity
growth increases to 2.5 per cent a year from our baseline
projection of 1.5 per cent. This would bring productivity growth
broadly in line with the UK's average during the 1990s (Chart
4.18). In this scenario, nominal GDP is 55 per cent higher by
2073-74 than in our baseline projection.
- A lower productivity scenario in which productivity growth
falls symmetrically to 0.5 per cent a year. This would be around
the average in the decade following the financial crisis. In this
scenario, nominal GDP is 36 per cent lower by 2073-74 than in our
baseline projection.
- The full report is available here.
