The Office for Budget Responsibility has warned that Rachel Reeves’ latest u-turns on spending cuts have left Britain more vulnerable and less able to respond to future crises. The OBR published a new report this morning on the vulnerability of the public finances, warning that the UK’s debt-to-GDP ratio is set to surge from 100% today to a whopping 270% by the early 2070s.
It slams successive governments, arguing that efforts to put the country’s finances onto a more sustainable footing in recent years have “been met with only limited and temporary success”. However Ms Reeves come under huge fire over her handling of the economy, and recent spending u-turns on Winter Fuel and welfare. The report says the UK has both been hit hard by the dual shocks of the Covid pandemic and energy crisis, and the Government has responded “relatively generously by international standards” when spending money to bail out voters during these crises.
It adds: “But in the aftermath of the shocks, debt has also continued to rise and borrowing remained elevated because governments have reversed plans to consolidate the public finances.”
“Planned tax rises have been reversed, and, more significantly, planned spending reductions have been abandoned.”
The OBR explains the result of this failure means the government’s capacity to respond to future shocks and crises, such as another pandemic of global recession has been substantially eroded.
Even more worryingly, it argues that voters have rising expectations about what the Chancellor can and should do in response to threats, and may be underprepared to deal with a government that cannot afford to introduce costly schemes like furlough or energy price bailouts.
Forecasting further into the future, the worrying report projects that pensions are set to become a huge problem for the country, especially with the rising cost of the triple lock.
The cost of the state pension has shot up since the 1950s, when it cost around 2% of GDP, and is now set to rise to 7.7% of GDP by the 2070s.
The OBR warns that the triple lock is costing around three times more than expected when introduced in 2012, when George Osborne presumed that the cost would be around £5.2 billion in 2029-30.
It is now expected to cost three times more – around £15.5 billion – putting its future into doubt.
It concludes that due to an aging population and the rising cost of healthcare, Britain’s debt-to-GDP ratio is set to hit 270% by the early 2070s, up from around 100% today.
Of 36 advanced economies measured by the OBR report, they find that the UK already has the 6th-highest debt, the 5th-highest deficit, and the 3rd-highest borrowing costs.
A Treasury spokesperson said: “We recognise the longstanding economic realities the OBR sets out in its report.”
“This is why we are committed to ensuring stability in the economy through our non-negotiable fiscal rules which have allowed us to invest in the UK to drive a decade of renewal and put more money in people’s pockets.”
