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Britain's ageing population 'could squeeze public spending for decades'

By John-Paul Ford Rojas

Published 12/06/2015

Chancellor George Osborne
Chancellor George Osborne

The strain of Britain's ageing population could mean a public spending squeeze lasting decades, according to the latest analysis by the independent Office for Budget Responsibility (OBR).

Its bleak long-term outlook foresees widening annual deficits leading to unsustainable debt if action is not taken to rein in spending or raise taxes - even after the current squeeze that began in 2010 after the coalition was elected.

The outlook appears in stark contrast to George Osborne's plans to force governments to deliver a budget surplus in normal times.

However, there was better news for Mr Osborne in separate figures showing the welfare bill over the next four years will be billions lower than expected, thanks to lower inflation and unemployment.

The Chancellor set out plans at the time of the Budget in March to end his austerity programme in the last year by the end of the current parliament. There would be more sharp cuts before spending rises in 2019/20 - a year earlier than previously thought.

But the OBR's analysis suggests another sharp dose of medicine could be needed soon afterwards - with a one-off policy tightening of 1.1% of gross domestic product (GDP), or £20bn in 2020/2021 - to avoid debt rising unsustainably.

This would help cut the debt to 40% of GDP by 2064/65 but it could then start to rise again. A slower scaling back by 0.4% a decade would alternatively stabilise the debt and prevent it from turning higher further down the track.

The changes would be needed because of rising expenditure over a period when Government revenues remained flat.

"Central projections show that population ageing will put upward pressure on public spending," the OBR said.

Under these forecasts, debt as a proportion of GDP, currently around 80%, is seen falling to 54% in the 2030s before rising to 87% in 50 years' time.

The OBR acknowledges "huge uncertainties" in the predictions - so that if the age structure of the population is older or net inward migration lower than pencilled in, the rise in the deficit would be even greater.

It said: "In our central projections... 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 would be unsustainable."

Meanwhile, the costs of nuclear decommissioning and medical negligence claims could possibly put "significant future pressures on public spending".

The OBR increased the provision needed for nuclear decommissioning by £7.6bn to £77.5bn, partly thanks to higher estimates of clean-up costs at Sellafield. A provision for clinical negligence pay-outs has increased by £2.9bn to £26.4bn.

Belfast Telegraph

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