Labour’s U-turns on welfare reform and cuts in winter fuel payments have contributed to the UK being left more vulnerable than almost major economy to new shocks such another energy crisis as well as long-term trends such as an ageing population, and climate change.
A bleak report on the long term outlook for the UK’s public finances from the official economic watchdog the Office for Budget Responsibility (OBR) says successive Governments have failed to take the tough decisions needed to start bringing the deficit under control.
In its latest latest Fiscal risks and sustainability report the OBR says “the scale and array of risks to the UK fiscal outlook remains daunting.”
It said successive governments efforts to put the UK public finances have met with only “limited and temporary success” with, most recently, Labour’s limited plans to cut welfare spending meeting a roadblock of rebel backbenchers.
The report details how the “major economic shocks” of recent years have left the UK more vulnerable than most of its competitors. Last year’s deficit of 5.7% was around 4 percentage points higher than the average for advanced economies and the fifth highest after only France, Slovakia, the US, and Israel
UK Government debt equivalent to 94% of GDP is the sixth highest among advanced economies after Japan, Greece, Italy, France, and the US. The 4.5% yield on 10 year gilts is the third-highest borrowing cost of any advanced economy after New Zealand and Iceland.
A succession of Chancellors have failed to get a grip of the rising level of public debt which has risen by 24 per cent of GDP over the past 15 years and by 60 per cent of GDP over the past 20.
Since the last such report in 2023 the outlook has if anything worsened as “rising geopolitical tensions have given rise to the largest increase in effective global tariff rates in over a century and put the UK and other European countries under pressure to increase defence spending to their highest levels since the end of the Cold War.”
Longer term the demographic pressures of an ageing population and rising costs of healthcare and other age-related expenditures are “projected to push borrowing above 20 per cent and debt above 270 per cent of GDP by the early 2070s.”
The report said the cost of the state pension has "risen steadily over the past eight decades", from around 2 per cent of GDP in the after the Second World War to the current 5 per cent of GDP, or £138 billion. It is estimated to rise to 7.7 per cent of GDP by the early 2070s.
The warning comes as Rachel Reeves Rachel scrambles to fill a huge hole left in her financial plans by Sir Keir’s £5 billion climbdown on welfare reform, as well as more than £1 billion to fund winter fuel payments for millions of pensioners after a previous U-turn.
She is expected to be forced into another round of tax hikes in her second Budget this Autumn to have any chance of meeting her fiscal rules.
