© Reuters. FILE PHOTO: Some of the artwork details are seen on a large scale sample of the new twenty pound note during the launch event at the Turner Contemporary gallery in Margate, Britain, October 10, 2019. Leon Neal/Pool via REUTERS/File Photo
By William Schomberg
LONDON (Reuters) -Britain’s public debt could surge to more than 300% of annual economic output by the 2070s, up from about 100% now, and the government is not taking measures to make big changes in the short term, the government’s budget forecasters said.
The Office for Budget Responsibility said challenges from an ageing society, climate change and geopolitical tensions were already posing big fiscal risks.
But Britain’s plans for stabilising and reducing debt as a share of gross domestic product were modest by historical and international standards, the OBR said in an annual report on the long-term outlook for public finances published on Thursday.
Finance minister Jeremy Hunt has set a target of getting underlying debt to fall in five years’ time, something he was only narrowly on course to hit at the time of his budget statement in March.
Since then, borrowing costs in financial markets have risen sharply, making Hunt’s target all the harder to hit.
The OBR said British government borrowing costs have risen more than in any other Group of Seven (G7) economy and they had been more volatile than at any time in the past 40 years.
“While other governments also face rising interest rates on debts close to or in excess of 100% of GDP, several factors make the UK’s public debt position more vulnerable to some shocks than in the past or in other advanced economies,” it said.
Britain had the shortest average maturity on its debt on record, the highest proportion of inflation-linked debt of any major advanced economy and more of its debt was held by private foreign investors than most other G7 countries, the OBR said.
On the long-term challenges, the OBR said a “baby boom” wave of people going into retirement would push the cost of Britain’s state pensions by 23 billion pounds ($30 billion) a year by the 2027/28 fiscal year compared with the start of the decade.
A rising take-up of electric vehicles was expected to cost 13 billion pounds a year in lost fuel duty revenues by 2030 and public investment needed to support decarbonisation of the economy could hit 17 billion pounds a year by then.
The OBR also said the government’s hopes of increasing defence spending to 2.5% of GDP from 2% now had a potential cost of 13 billion pounds a year.
($1=0.7651 pounds)
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