UK National Debt to Treble Over Next 50 Years, OBR Forecast Suggests

Shoppers on High Street in Worcester, England, on Dec. 27, 2023. Jacob King/PA

The long-term risks to the economy will lead to UK national debt tripling over the next 50 years, the Office of Budget Responsibility (OBR) has warned.

The pressures leading to a remarkable jump in the cost of what the government owes to its creditors include climate change, ageing population and geopolitical tension, the OBR said.

In its latest Fiscal Risks and Sustainability report, the watchdog estimated the government spending to surge from 45 to 60 percent of GDP over the next 50 years. The revenues will remain at around 40 percent, and the national debt will rise to 274 percent of GDP from the late 2030s.

“Long-term projections such as these are inherently highly uncertain but there is a similar upward debt trajectory in nearly all the alternative scenarios that we consider,” the OBR said.

When further shocks and pressures are taken into account, the estimated rise in UK debt will be over 300 percent of GDP.

Chief Secretary to the Treasury Darren Jones said that the state  of public finances, inherited from the previous government, was “shocking.”

“That’s why this government began work immediately to address the inheritance with tough choices on spending alongside ambitious action to drive growth,” he said.

Alleviating the Pressure

The damage to the economy, outlined by the OBR, spreads beyond the five-year course of a political cycle. Unless policymakers take measures to reduce public spending and increase revenue, several consecutive governments will feel the impact of skyrocketing national debt.

The watchdog listed a number of measures to alleviate the pressures on the economy.

One of them is limiting the rise in global temperatures to less than 2 degrees Celsius rather than 3 degrees Celsius. Over the next 50 years, this could take 10 percentage points off the debt-to-GDP ratio.

Changes in demographics and a rise in ageing population will up the pressure on the NHS and government spending on healthcare. The long-term benefits of improved health of the population will result in debt reduction by 40 percent of GDP, the watchdog estimated.

“Healthier people are more likely to be employed, often earn more, and tend to live longer. And the converse is also true for those in ill health. The health of the population therefore also has implications for government tax revenues, welfare spending, pensions, and other age-related spending,” said OBR chair Richard Hughes.

Finally, policymakers need to boost economic growth, which “could make the biggest difference of all,” the report said. It estimated that every 0.1 percent increase in productivity growth will reduce national debt by 25 percent.

Boosting Revenue

OBR’s analysis doesn’t take into account of any tax and spending policies announced by the new Labour government.

Labour has warned that the upcoming October budget will be “painful” and said there was a “£22 billion black hole” in the public finances. The government is expected to announce a number of tax changes, which are meant to increase revenue for the Treasury.

Labour plans to raise £2.6 billion over the course of the next Parliament—including £1 billion initially—“by closing the loopholes” in the tax status of UK resident non-domiciled individuals.

Labour also wants to establish a wider range of tax schemes to be reported to HMRC under the disclosure of tax avoidance schemes regime.

Motorists expect the government to announce an increase in fuel duty in the budget statement. The British automotive services company RAC has warned that a rise to 58p a litre was in plans.

According to Hughes, if Labour wants to keep public finances “sustainable,” it’s likely to raise taxes or cut spending in “almost any scenario.”

Government borrowing stood at £3.1 billion in July, the highest July borrowing since 2021. The public sector net debt was estimated at 99.4 percent of GDP and remains at levels last seen in the early 1960s.