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UK long-run budget outlook remains “unsustainable”

LONDON - Britain’s long-run fiscal outlook over the next 50 years remains “clearly unsustainable”, despite the government making some progress in reducing current borrowing and public-sector pension commitments, an official watchdog said on Thursday.

By (Reuters)

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Published: Thu 12 Jul 2012, 5:34 PM

Last updated: Tue 7 Apr 2015, 12:23 PM

The Office for Budget Responsibility said it expected public sector net debt to fall from 74 per cent of GDP in 2016-17 to a trough of 57 percent in the mid-2020s, before rising increasingly quickly to reach 89 percent of GDP in 2061-62.

This was better than its long-run forecast last year, when it predicted debt would total 107 percent of GDP by 2060-61.

However, the OBR said more needed to be done to put Britain’s public finances on a secure footing where total debt was not steadily rising in the long run.

“On current policy we would expect the budget deficit to widen sufficiently over the long term to put public sector net debt on a continuously rising trajectory as a share of national income. This is clearly unsustainable,” the OBR said.

Deputy finance minister Danny Alexander said that the OBR report vindicated the decision in 2010 by the new Conservative-Liberal Democrat coalition to make deficit reduction a priority.

“The OBR analysis makes it clear that our medium-term consolidation plan is essential to restoring long-term sustainability in the public finances,” Alexander said.

“A deterioration in the primary balance in 2016-17 worth 1 percent of GDP could increase projected public sector net debt in 2061-62 to around 130 percent of GDP. This shows the scale of impact if the medium-term consolidation was not achieved,” he added.

The opposition Labour Party argues that the coalition’s pace of deficit reduction is self-defeating during Britain’s current recession, as it retards the growth also needed for Britain’s public finances to be sustainable. (