By David Milliken
LONDON (Reuters) -Britain faces an unsustainable debt burden more than three times its current level unless future governments raise taxes to fund increasing costs from an ageing population and falling revenue from taxation on motor fuel, a watchdog warned on Thursday.
Britain’s Office for Budget Responsibility (OBR), a government agency, said debt was on course to reach almost 320% of gross domestic product (GDP) in 50 years’ time – up from 96% currently – if successive governments did not tighten fiscal policy.
“The pressures of an ageing population on spending and the loss of existing motoring taxes in a decarbonising economy leaves public debt on an unsustainable path in the long term,” the OBR said.
Britain’s government has pledged to ban the sale of new petrol and diesel-powered cars from 2030.
Fuel duties are currently a big source of tax revenue, while domestic electricity is fairly lightly taxed.
The OBR’s baseline forecast shows debt as a share of GDP falling over the next 20 years – partly due to short-run gains from a lower birthrate and slower increases in life expectancy – before rising to 267% of GDP in 50 years’ time.
To return the debt-to-GDP ratio to its pre-COVID level of 75% would require extra tax rises or spending cuts of 1.5% of GDP or 37 billion pounds every decade for the next 50 years, the OBR said.
Adding in the type of economic shocks that have hit Britain’s economy since World War Two, and the debt burden would rise to 320% of GDP without corrective action.
The deteriorating global geopolitical situation – exemplified by Russia’s invasion of Ukraine – could push debt even higher, the OBR said.
Debt could hit 430% of GDP in 50 years’ time if Britain raised defence spending to 3% of GDP from 2%, suffered a big one-off hit from a cyber-attack and faced persistent damage from a global trade war.
(Reporting by David Milliken, editing by Andy Bruce)
