OBR figures show tough choices on public finances to come

Published on Friday, 13 July 2012 10:39

Posted by Scott Buckler

New figures published today by the Office for Budget Responsibility reveal the long-term pressures on the public finances caused by Britain's ageing population and technological advances

IPPR analysis quantifies the tough political choices on tax and spending needed to ensure that the public finances remain sustainable over the long-term and that key policy priorities can be delivered.

IPPR Senior Research Fellow, Kayte Lawton, said:

"An ageing population, technological progress in healthcare and growing national prosperity will, over the long-run, raise demand for some public services. Spending on healthcare and pensions will inevitably increase, raising the possibility of other areas being squeezed.

"But the collective provision of key public services – such as education and healthcare – remains the most cost effective and fair approach. The challenge for government is to find alternatives to cuts in state provision in these areas. This will necessarily involve identifying low-priority spending or tax-breaks that can be cut, and finding new sources of revenue such as road-user charging and taxes on wealth.

"These painful choices could be limited if the government can find ways of boosting productivity growth in the public sector – so that levels of provision can be maintained with fewer resources – and of boosting the growth of the economy more generally. Cutting beneficial forms of migration is also likely to be harmful to the public finances. Ultimately, the best way of ensuring a high level of provision of public services is by having a larger economy.

"This will require the government to prioritise spending in areas that will lift economic growth in the long-term. These include infrastructure investment, which supports growth in the private sector, and childcare, which enables a greater proportion of the population to work."

OBR projections show that government borrowing would start to rise from 2020 unless policy reforms are capable of raising additional revenues, cutting back on spending in some areas or substantially increasing the long-term growth rate. This would cause government debt to reach 89 per cent of GDP by 2061, regardless of how successful the current round of deficit reduction is.

Source: ©IPPR