Rise in health spending puts state debt on unsustainable path, report warns

PA

The Government's promise of a £20 billion boost for the NHS will put debt on an "unsustainable upward trajectory" without tax rises or spending cuts to pay for it, the Office for Budget Responsibility has warned.

A fiscal "tightening" totalling around £111 billion in today's money could be needed in 2023/24 to get debt under control, the official forecaster said.

In its Fiscal Sustainability Report, the OBR said that, without changes to tax and spending policy, public sector net debt could rise from 80% of GDP in 2022 to almost 283% by 2067.

And it dismissed suggestions that the increased NHS spending could be paid for with a "Brexit dividend", stating that "Brexit is more likely to weaken than strengthen the public finances overall".

The OBR said: "On current policy we would expect the budget deficit to widen significantly over the long term, putting public sector net debt on a rising trajectory as a share of national income.

"This would not be sustainable."

And it added: "The main lesson of our analysis is that future governments are likely to have to undertake some additional tightening beyond the fiscal plans in place for the next five years in order to address the fiscal costs of an ageing population and upward pressures on health spending.

"Leaving all or part of the June 2018 health spending announcement unfunded would simply require greater action later."

NHS funding
NHS funding

Announcing her plan for a £20.5 billion annual real-terms rise in health spending by 2023/24 last month, Prime Minister Theresa May acknowledged that taxpayers "will have to contribute a bit more in a fair and balanced way".

But she did not put a figure on the increase, and said that some of the extra funding would come from savings from contributions to EU budgets after Brexit.

In its own report, Managing Fiscal Risks, the Treasury said: "The Government is committed to reducing the level of public debt in a balanced way, while also providing more money for public services like the NHS, keeping taxes low and investing in infrastructure to build an economy that is fit for the future.

"As a result, debt is forecast to begin its first sustained fall in a generation this year. This is an important turning point for the UK economy, but the Government needs to ensure that it has world-class management of fiscal risks to keep the public finances moving in the right direction."

Under the OBR's projections, public sector net debt is forecast to fall from a peak of 85.6% of GDP in 2017/18 to 80% in 2022/23.

But after that point, extra spending pressures including an ageing population and increasingly expensive medical treatments is forecast to drive it up to 282.8% by 2067/68.

Branding the projected rise "unsustainable", the report states: "Needless to say, in practice policy would need to change long before this date to prevent this outcome."

Under the projections, annual state spending - excluding interest payments on the UK's debt - would rise from 36.4% of GDP in 2022/23 to 44.6% in 2067/68. This is the equivalent of an extra £172.8 billion in today's money.

Health spending would rise from 7.6% to 13.8% of GDP over the same period, while pension costs would increase from 5% to 6.9%, unless the current triple-lock protection is abandoned. Adult social care costs would soak up 1.9% of GDP in 50 years' time, compared to 1.3% in 2022.

Without changes to fiscal policy, these pressures would push the state deficit - the difference between the amount spent by the Government each year and the amount collected in taxes and other income - would rise from 0.3% of GDP to 8.6% over the same period, equivalent to £176.5 billion a year in today's money.

The report set out possible options for reining in debt, by "tightening" fiscal policy through tax rises and spending cuts.

One option would be a one-off tightening of 5.2% of GDP - £111 billion in today's money - in 2023/24, which could be expected to hold debt down to around 40% of GDP in 2067/68, but would see it rise after that date.

An alternative would be to tighten policy by 1.9% of GDP every decade for the next 50 years, which would stabilise debt at around the target level and prevent it taking off again, said the OBR.