National debt could hit 300% of GDP by 2070s, independent watchdog the OBR warns
The UK’s national debt could hit 300% of GDP by the 2070s because of the string of major challenges still facing national governments after a “rapid succession of shocks”, according to a report for the Treasury.
The independent Office for Budget Responsibility (OBR) laid out how climate change, defence and the fact people are living longer all posed significant, and current, risks at a time when the public finances are already reeling from COVID, cost of living support and higher interest rates.
The national debt hit a 60-year high of £2.56trn in May – equivalent to 100% of national GDP for a year.
The OBR’s fiscal risks and sustainability report stated that the government’s plans for stabilising and then reducing debt as a share of national output were relatively modest by historical and international standards.
That was despite a previous warning from the watchdog, in March, that the UK’s tax burden was on course to hit the highest level since the Second World War by 2027/8.
Its conclusions also stated that as the baby boomer cohort retires and pushes up the cost of the so-called triple lock, state pension spending was expected to be £23bn higher in 2027/8 than at the start of the decade.
It also warned that rising take-up of electric vehicles was expected to cost £13bn a year in lost fuel duty by 2030.
The report, which looks at the long term risks, highlighted a number of immediate financial burdens including a projection that the hit from record long-term sickness in the workforce will cost the state a further £6.8bn this year in benefit payments.
It all makes for grim reading in Number 11 Downing St as the chancellor seeks an opportunity to deliver some goodies to the public ahead of the next election.
That prospect is looking more elusive by the day.
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The OBR’s findings were delivered just hours after the latest grim set of statistics covering the economy, with official figures for May showing a contraction for gross domestic product (GDP) of 0.1%.
Perversely, a flatlining economy is actually and temporarily good news for the government and Bank of England as both seek to bring down stubbornly high inflation.
Weaker demand in reaction to rising interest rates is what Bank policymakers are looking for before they can halt the tightening cycle that has resulted in 13 consecutive increases in Bank rate to date.
Rising interest rates, and market expectations for rates, are bad news for the taxpayer as well as wider borrowers, such as mortgage holders, because they have forced up borrowing costs.
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“He talks about balancing the books, but his party crashed the economy”
Yields, the implied interest rate, on core 10-year UK government bonds hit 2008 financial crisis levels earlier this month.
Many UK IOUs are linked to inflation, making the cost of servicing the existing debt pile worse.
The OBR’s report said: “The 2020s are turning out to be a very risky era for the public finances.
“In just three years, they have been hit by the COVID pandemic in early 2020, the energy and cost-of-living crisis from mid-2021, and the sudden interest rate rises in 2022, whose consequences continue to unfold.
“This rapid succession of shocks has delivered the deepest recession in three centuries, the sharpest rise in energy prices since the 1970s, and the steepest sustained rise in borrowing costs since the 1990s.
“And they have pushed government borrowing to its highest level since the mid-1940s, the stock of government debt to its highest level since the early 1960s, and the cost of servicing that debt to its highest since the late 1980s.”
Chancellor Jeremy Hunt responded: “In common with many advanced economies, the UK’s level of debt remains elevated following recent global shocks, including the pandemic and energy prices.
“This highlights why it is important to deliver on the Prime Minister’s priority to get debt falling and to control borrowing to avoid adding inflationary pressures and risk prolonging higher inflation.
“That means taking difficult but responsible decisions on the public finances, including public sector pay, because more borrowing is itself inflationary.”
Shadow chancellor Rachel Reeves said: “This report shows just how far we are falling behind our peers, how exposed our economy is, and again highlights that the government is failing to take action in areas like energy security to help get bills down.”
She added: “It’s time for them to step aside and let Labour restore our national economic and financial security, driven by our mission to secure the highest sustained growth in the G7.”
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The first vote on the assisted dying bill is not only hugely consequential, it’s also hugely unpredictable and even as the vote draws near it still feels like it could go either way.
MPs will debate the bill, brought forward by Labour MP Kim Leadbeater, in parliament today before they get a free vote on the legislation.
There are a few reasons why the potential outcome of the vote is difficult to predict. Firstly, the last Commons vote on this issue was back in 2015. It was also a Private Members’ Bill and a free vote, that was defeated by 331 to 119 – 199 MPs didn’t vote and one abstained.
That may seem like a useful starting point to predict future results but there has been an unprecedented turnover of MPs since then.
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It was less than a decade ago but over two-thirds of those MPs from 2015 are no longer in parliament. This means there’s no voting record that can help us out this time round.
Secondly, it’s a free vote so we can’t, as we usually would, look to the political parties to work out the numbers.
Every single one of the 650 MPs must make up their minds for themselves and they have all taken a slightly different approach to the process.
How MPs have told Sky News they will vote on assisted dying
Some came out straight away and declared their position publicly. Some took their time and have only decided in the last few days, putting out statements on social media platforms.
There are also those who prefer to keep it to themselves, and some who are genuinely still undecided and will be until they walk through the voting lobbies.
So, to get a sense of what could happen, at Sky News we have been monitoring declarations as well as reaching out to every MP personally.
This has given us, on the eve of the second reading, an informative but still incomplete picture.
So far we have confirmed that 181 MPs will vote for the bill, while 148 say they will vote against, and 300 are either undecided or haven’t revealed their decision.
There are also 20 MPs that won’t vote – the SNP because the changes won’t apply in Scotland, Sinn Fein who don’t sit in Westminster, and the Speaker and Deputy Speakers.
Of those who will vote but whose position is still unknown, about two-thirds are Labour MPs – a big chunk of those are brand new.
This is the deciding cohort, who just a few months into their roles will make a life-or-death decision that will influence generations to come – no pressure.
Ms Leadbeater has said she hopes parliament will “show itself at its best” by voting in favour of the bill.
In a statement on Thursday night, she said: “I hope this parliament will also be remembered for this major social reform that gives people autonomy over the end of their lives and puts right an injustice that has been left on the statute books for far too long.
“People will be looking in on parliament as it debates this important change to the law – a change that, when we most need it, could bring comfort to any one of us or to somebody we love.”
Read more on assisted dying:
Analysis: Bill could be wrecked by dirty tricks
Five stories that bring the assisted dying debate home
David Cameron comes out in support of bill
How MPs are making up their minds
What does the bill propose?
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Lord Cameron to support assisted dying bill
What could make the difference?
Most MPs tell us they have been poring over the legislation line-by-line and listening intently to their constituents.
But beyond that, there are external factors that will no doubt have influenced their thinking.
Public opinion will be high on the list, with the latest YouGov poll – one of many – showing an overwhelming majority (73%) of the public are in favour of a change in the law.
The other will be how Cabinet ministers vote, with many high profile and respected names, Ed Miliband and Hilary Benn among them, coming out in favour.
MPs will vote in the House of Commons on the bill
More controversial though are those who oppose the bill.
In particular, the Health Secretary Wes Streeting and the Justice Secretary Shabana Mahmood have made the news with their views.
They will both have to take a leading role in implementing the legislation if it passes.
Mr Streeting shocked Westminster when he revealed he had changed his mind after voting for the 2015 version.
He also ruffled feathers among colleagues when he appeared to breach the etiquette around free votes, by repeatedly raising concerns around extra pressures on the NHS and making the case for improving palliative care instead.
Health Secretary Wes Streeting changed his mind on the issue. Pic: PA
Mr Streeting’s position and approach have made the bill’s supporters nervous that new MPs will fall in behind him.
In contrast, other big beasts – the prime minister, the chancellor and the foreign secretary – remain silent on which way they will go, aware that their opinions could sway the result.
As it stands, after all the number crunching, it looks likely that this landmark legislation will pass the second reading.
But with so many unknowns, both sides will feel that even at this late stage, it’s still impossible to call.
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