ICAEW chart of the week – Fiscal forecast

With everything else going on this month, you may have missed today’s publication of the Office for Budget Responsibility’s Fiscal Sustainability Report.  This sets out the government’s official long-term fiscal forecast, projecting tax receipts and public spending over the next 50 years.

The central forecast is startling: public spending is expected to increase from 39% to 57% of GDP by 2068. Without tax increases or a major change in public service provision, public sector net debt is forecast to reach 282% of GDP by 2067-68 and continue rising thereafter. 

The key driver here is an ageing population, with the over 65s increasing from 18% of the population today to over 26% in fifty years’ time. As a consequence, spending on health, adult social care and the state pension are all expected to increase significantly.

While the OBR rightly concludes this is not sustainable on the basis of current fiscal polices, their mandate prevents them from making recommendations about what to do.  Do we want to see European levels of taxation? Or will the public accept lower pensions, fewer public services, and different models for funding health and social care?

Tough choices need to be made. Are we willing to make them?

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