UK long-term fiscal outlook "clearly unsustainable", says OBR
The OBR says public sector debt will fall before rising again in the mid-2020s
By CFOWorld staff | CFO UK | Published 15:27, 12 July 12
The Office for Budget Responsibility said it expected public sector debt to fall before rising again in the mid-2020s and that the UK’s fiscal outlook for the next 50 years was “clearly unsustainable”.
The OBR said more needed to be done to put Britain's public finances on a secure footing where total debt was not steadily rising in the long run.
Despite the government making some progress in reducing current borrowing and public-sector pension commitments, the official watchdog said on Thursday that it expected public sector net debt to fall from 74 percent of gross domestic product in 2016-17 to a trough of 57 percent in the mid-2020s, before rising increasingly quickly to reach 89 percent of GDP in 2061-62.
"On current policy we would expect the budget deficit to widen sufficiently over the long term to put public sector net debt on a continuously rising trajectory as a share of national income. This is clearly unsustainable," the OBR said.
Danny Alexander, Lib Dem chief secretary to the Treasury, said that the OBR report vindicated the decision in 2010 by the coalition government to make deficit reduction a priority.
"The OBR analysis makes it clear that our medium-term consolidation plan is essential to restoring long-term sustainability in the public finances," Alexander said.
"A deterioration in the primary balance in 2016-17 worth 1 percent of GDP could increase projected public sector net debt in 2061-62 to around 130 percent of GDP. This shows the scale of impact if the medium-term consolidation was not achieved," he added.
The Labour Party argues that the coalition's pace of deficit reduction is self-defeating during the current recession, as it holds back growth also needed for the public finances to be sustainable.
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