Rachel Reeves has warned of a £22 billion ‘black hole’ in the public finances. But the reports published today by the Office for Budget Responsibility and Lord Darzi show that the real black hole is far larger – and driven by the cavernous gap between Britain’s spending commitments and its growth rates.
- The Office for Budget Responsibility’s latest Fiscal Risks and Sustainability Report, released today, shows that Britain’s public sector net debt is on course to reach 274% of GDP by 2074, with state spending equivalent to 60% of GDP
- This will place a crushing burden on future generations, with welfare and healthcare spending on an ageing population a major driver of this nightmare scenario
- Meanwhile, Lord Darzi’s review of the NHS warned of a ‘very significant mismatch between the demands placed upon the NHS and the resources available to it’, arguing that the health service should have received tens of billions more in recent decades in capital funding alone – without any indication of how this can be paid for
- In 2023, the Centre for Policy Studies essay collection Justice for the Young showed keeping spending on an ageing population constant would require growth of 2.9% per year, for the next 50 years
- The figures in the OBR report show that the only way out of this debt trap is a sharp and sustained increase in productivity. The only alternatives are a serious re-examination of what the state can afford – or tax rises that see the state swallow almost two thirds of national income
- The report also shows that migration is no panacea, with low-wage migrants – of the kind that currently dominate our migration mix – costing the state more than they contribute at every stage of their time in the UK
CPS Research Director Karl Williams said:
‘Politicians on all sides should sit up and take notice of the OBR report released today – the UK’s current economic trajectory is terrifyingly unsustainable. Government spending is set to increase at an alarming pace, with no plan for how this will be paid for. Indeed, the Darzi report is just the latest to demand billions more in tax revenue to prop up the NHS, with no explanation of how this extra funding can be paid for. This is a recipe for a bankrupt Britain.
‘The OBR report, like Darzi’s, shows that tackling economic inactivity can help with the numbers. But fundamentally, the only way to keep debt below 100% of GDP is to return productivity growth to pre-2008 levels.
‘It also shows, as the CPS has consistently argued, that we need to rebalance our migration policy towards those who can make a substantial positive contribution to the country’s economy, which is currently emphatically not the case. Even this, however, would not be enough to close the revenue gap.
‘To escape the debt trap, we need sweeping planning reform to allow the building of millions more homes in the most productive parts of the country and the energy infrastructure we need to power growth, as well as a tax regime that rewards, incentivises and attracts investors and wealth creators rather than driving them away from this country.’
ENDS
NOTES TO EDITORS
- Karl Williams is Research Director at the Centre for Policy Studies
- ‘Justice for the Young’ is available here
- ‘Taking Back Control’ is available here
- For further information, please contact Emma Revell on 07931 698246 and [email protected]
- The Centre for Policy Studies is one of the oldest and most influential think tanks in Westminster. With a focus on taxation, economic growth, business, welfare, housing and green growth, its goal is to develop policies that widen enterprise, ownership and opportunity
Date Added: Thursday 12th September 2024
