UK public finances facing 'unsustainable path', warns OBR

Publishing its latest fiscal risks and sustainability report, the Office for Budget Responsibility said the UK economy had been rocked by a series of "extraordinary" events: a global financial crisis, pandemic and surge in energy costs.

"The public finances have emerged from these shocks under strain," it noted. As at March 2024, debt had more than tripled as a share of GDP to 98.1%, the highest since the early 1960s.

According to estimates from the Office for National Statistics in July, national debt currently stands at around £2.7trn, or 99.4% of GDP.

Public spending, meanwhile, which includes interest costs, stands at 45% of GDP.

However, the OBR warned that the public finances were facing a number of long-term pressures, including an ageing population, climate change and geopolitical tensions, that risked debt spiralling even further.

It forecast public spending to rise to more than 60% of GDP over the next 50 years, while state revenues remained at around 40%. As a result, debt was forecast to rise rapidly from the late 2030s, to 274% of GDP.

It concluded: "Based on policy settings in March 2024, these and other pressures would eventually put the public finances on an unsustainable path."

The OBR advised that the surge in debt could, however, be partially alleviated through improved underlying economic conditions, limiting the rise in global temperatures to less that 2C, improving the population’s health and boosting the productive potential of the economy.

The latter, it noted, "if not does not simply result in higher public spending could make the biggest difference of all, with every 0.1% increase in productivity growth reducing the rise in the debt-to-GDP ratio by 25 percentage points".

The report is based on the previous government’s policies at the time of the spring Budget, and does not take account of any policies announced by the new government.