UK health spending 'unsustainable' unless policy changes - OBR

The Office for Budget Responsibility has warned the UK budget will be harder to balance due to the rising health care costs, with public spending needing to rise by £156bn in coming decades.

With an ageing UK population and upward pressure on health spending from new technology and what it sees as a rising prevalence of chronic health conditions, the OBR predicted the government would end up having to spend more as a share of national income on items such as pensions, and health care in particular, though demographic trends should still leave government revenues roughly stable.

The OBR warned: "In the absence of offsetting tax rises or spending cuts this would widen budget deficits over time and put public sector net debt on an unsustainable upward trajectory."

In its annual fiscal sustainability report, where it sets out its long-term projections for spending, revenue and financial transactions, OBR calculated total non-interest public spending will need to rise from 35.8% of GDP at the end of its medium-term forecast in 2021-22, to 43.8% of GDP by 2066-67.

"That would represent an overall increase of 8.0% of GDP – equivalent to £156bn in today’s terms," it said.

Of that, around £88bn reflects new assumptions about additional non-demographic cost pressures pushing up growth of health spending.

A much steeper rate of spending increase on healthcare was predicted, even though researchers assumed less challenging demographic, but a higher starting point and, more importantly,
the new inclusion of non-demographic cost pressures.

There was also criticism for the various changes made by the government to private pensions and savings policy in recent years, which the report said were likely to have a greater net cost over the long term that is greater than was apparent when they were announced and costed.

"Taken together, they have made pension saving less attractive – particularly for higher earners – while making non-pension saving more attractive – often in ways that can most readily be taken up by the same higher earners."

The OBR said the long-term outlook for the public finances "is somewhat less favourable" than at the time of its last FSR in 2015.