- Extra austerity needed from 2018 to keep national debt under control
- Health, social care and state pension costs could force future government to fork out extra £61bn in 50 years' time
- Public sector debt could hit 100% of GDP and rising if further cuts not made
Updated:
Rising costs associated with the UK's ageing population means billions of pounds needs to be generated through spending cuts or tax hikes in the next six years, the Office for Budget Responsibility has warned.
Health, social care and state pension costs could force future governments to fork out an extra £61billion in today's money in 50 years' time, causing public sector debt to sky-rocket to 99 per cent of Britain's economic output.
More immediately, the Government needs to take the pre-emptive move of finding an extra £19billion by 2018/19 if it wants debt of 40 per cent of GDP by 2062, amid cost pressures caused by British pensioners and uncertainty over revenues generated by taxation and North Sea oil and gas.
Pension costs: The cost of providing state pensions is expected to rise to 8.4 per cent of GDP by 2062/63.
Without this action, the OBR warns national debt could exceed GDP beyond 2062/63. In the short-term, it expects debt to peak at 85.6 per cent of GDP in 2016, before it falls to 66 per cent in the early 2030s as the economy grows.
In its annual Fiscal Sustainability Report, the OBR said: 'Under our central projections, the Government would need to implement a permanent tax increase or spending cut of £13billion in 2018/19 to get debt back to 60 per cent of GDP... and £19billion to get it back to 40 per cent.
'It is clear that longer-term spending pressures, if unaddressed, would put the public finances on an unsustainable path.
'Public sector net debt would approach 100 per cent of gross domestic product and still be rising.'
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The projections follow three years of austerity measures to rein in public spending since the Coalition Government took office, with Chancellor of the Exchequer George Osborne announcing a further £11.5billion in departmental spending cuts just last month.
Steps are already being taken to limit state pension spending - projected to be worth 5.8 per cent of GDP in 2017/18 - by increasing the state pension age for both men and women to 66 by 2020 and 67 by 2028.
Ageing nation: Rising life expectancies and declining fertility will see pensioners than ever come 2062/63.
But with spending expected to increase to 8.4 per cent of GDP in 2062/63 as baby boomers retire, fertility rates fall and life expectancy continues to rise, the OBR report has prompted a call to accelerate the raising of the state pension age.
Baroness Sally Greengross, chief executive of think-tank the International Longevity Centre, said: 'The costs set out today are not inevitable. Increasing the average retirement age by just one extra year could bring in around £13billion or 1 per cent of GDP.
Uncertainty: Revenues from the UK oil and gas sectors are predicted to fall to 0.03 per cent of GDP by 2040.
'If we don't invest in the prevention of ill health, fail to significantly extend working lives and do nothing to support the voluntary contributions of older people, we could see even higher costs.
'If tomorrow's pensioners are more unhealthy than today's, with less access to preventative care, and few new health innovations, costs will be higher than predicted.
'The cost of our ageing society is not about the free TV licence or the bus pass, yet recent political debates have focussed on these issues to the exclusion of the long term challenges.
'We increasingly hear of crises in the health and care sector, whether it be pressures on acute services or care failing to meet our needs. Without a long term plan these crises will become even more common.
'Despite the warnings set out today, Government does not have an adequate strategy to respond to the challenges posed by the Office for Budget Responsibility.'
There has been growing concern over future pensioners becoming a larger burden on the state in future decades, particularly as the quality, contribution level and return expected from private pensions are seemingly deteriorating.
The move to a flat-rate state pension worth £144-a-week in today's money is expected to ease the pressure on public sector debt in the short-term, the OBR says, but that spending on healthcare is expected to be the biggest pressure over the next 50 years.
Care costs: Government moves to limit the amount people spending on long-term care in retirement will see the overall cost rise.
Health spending is expected to rise from 7 per cent of GDP in 2017/18 to 8.8 per cent in 2062/63.
Long-term social care costs meanwhile will rise from 1.3 per cent in 2017/18 to 2.4 per cent.
Some 0.3 per cent of this rise is down to the Government's recent introduction of the £72,000 lifetime cap on care home costs borne by individuals.
Nigel Waterson, Chairman of the Equity Release Council, said: 'Today’s report leaves no doubt that catering for an ageing population will be one of the defining economic and political challenges of the next 50 years.
'It presents little choice in terms of increasing taxes and cutting spending to support healthcare, state pensions and long-term social care. The alternative - an ever widening budget deficit - is unthinkable'
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