UK needs extra spending cuts, says OBR

Chancellor George Osborne is already making deep spending cuts

The UK government must make deeper cuts or raise more money in the future to keep public finances in check, the Office for Budget Responsibility says.

In its annual look at the government's finances, the OBR says in 2017-18 public spending needs to be cut by another £17bn or the same amount raised in taxes to stop debt ballooning.

The OBR says this change would bring total debt back to 40% of GDP by 2061.

Without the move it says debt would reach 89% of annual income by 2061.

It says the main reason more cuts are needed, on top of the £123bn already going through, is the rising healthcare costs caused by more people living longer.

It also says the fiscal position is unsustainable if the public sector's debt is not contained, as it would then take more of the national income to pay interest on its growing debts.

Age costs

The OBR's report says its projections suggest that the public finances are likely to come under pressure over the longer term, "primarily as a result of an ageing population".

This would mean the government spending more on age-related items such as pensions and health care with revenues staying broadly the same.

This, it says would widen budget deficits over time and eventually put public sector net debt on an "unsustainable upward trajectory", which would lead to lower long-term economic growth and higher interest rates.

The tax and spending watchdog has warned the Government that it will need to find billions of pounds more in austerity measures to keep the public finances under control until 2061. The Office for Budget Responsibility warns of the impact of an ageing population in its annual fiscal sustainability report.

Challenges remain

The Chief Secretary to the Treasury, Danny Alexander, told the BBC that the report was sending a message to the policy makers of today and tomorrow.

"There is a continuing challenge for governments not just to take the right decisions in the short term, as I believe we are with the plan on dealing with the deficit, but also to take the right decisions for the long term, as I think we have, for example, by increasing the state pension age and by those dramatic reforms to public service pensions which will be saving some £430bn over the next 50 years."

Labour's shadow chief secretary to the Treasury, Rachel Reeves, said the government did not have the right plan to balance the country's books.

"We are already seeing how the double-dip recession is causing borrowing to go up and an extra £150bn added to the debt," she said.

"Britain will pay a very heavy economic and social price if we continue to have years of slow growth and high long-term unemployment. That is why urgent action is needed now to get the economy moving again."

The chairman of the OBR, Robert Chote, told the BBC the money could be raised more gradually, but that it would still need to be raised.

"There are big uncertainties around these sorts of numbers, but it does suggest that once the current crisis-related repair job has been completed, there are still challenges to confront thereafter," he said.

The OBR pointed out that the long-term outlook, which covers almost 50 years, was subject to "huge uncertainties" and that the figures should be seen as broad-brush projections rather than precise forecasts.

The OBR, which was created in 2010, is charged with providing an analysis of the sustainability of the public finances once a year.