By Marcus Leach
The Office for Budget Responsibility (OBR) has said that the UK government must make deeper cuts or raise more money in the future to keep public finances in check.
The warning comes following the OBR's annual analysis of the government's finances, after which it was concluded that in 2017-18 public spending needs to be cut by another £17 billion, or the same amount raised in taxes to stop debt ballooning.
If this change is achieved the OBR say that total debt would be back to 40% of GDP by 2061. Rather worryingly, without the change, debt would reach 89% of annual income by 2061.
The OBR has also said that the fiscal position is unsustainable if the public sector's debt is not contained.
“This report, although subject to uncertainties, contributes to the transparency of our public finances, and provides a framework for debating long-term policy issues," David Kern, Chief Economist at the British Chambers of Commerce (BCC), said.
"The OBR’s projections remind us that the UK economy will face major challenges over the next few decades. Our public finances will come under serious long-term pressures due to ageing populations and the need to allocate more resources to spending on pensions, health and personal care. Even if the government’s tough austerity plan is implemented successfully by 2016/17 and the fiscal position improves until the mid 2020’s, the report suggests there will be a long-term deterioration in the decades that follow.
“There is a risk that the fiscal position will become unsustainable in the absence of further tax increases or spending cuts. Without corrective action, the grim implication is lower economic growth and higher interest rates. The UK faces difficult policy choices if it is to return to pre-crisis growth rates. Our limited resources mean that we have to adapt our economic and social ambitions, but the private sector must be empowered to increase productivity and create wealth and jobs. Only then, will we be able to pay for the rising cost of public services.”
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