Ageing population threatens Britain's debt burden: report

13th July 2011, Comments 0 comments

Britain's debt burden will be put on an "unsustainable upward" path should the state fail to raise taxes and cut public spending faced with an ageing population, a budget watchdog warned on Wednesday.

"The public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population," the Office for Budget Responsibility (OBR) said in a report.

"In the absence of offsetting tax increases or spending cuts this would eventually put public sector net debt on an unsustainable upward trajectory.

"It is likely that such a path would lead to lower long-term economic growth and higher interest rates, exacerbating the fiscal problem," said the OBR, created last year by the government to provide independent fiscal forecasts.

It added in its first 'fiscal sustainability' report: "The UK, it should be said, is far from unique in facing such pressures."

The OBR said that Britain's public finances were likely to come under increasing strain owing to increased spending on healthcare and pensions for the elderly.

It said the government would need to implement a permanent tax increase or spending cut of 1.5 percent of gross domestic product -- or £22 billion (25 billion euros, $35 billion) -- in the financial year ending in 2017 so that the nation's debt is back to 40 percent of GDP in 2061.

Alternatively, future governments could pursue a more modest pace of fiscal tightening in the coming decades to achieve the same goal, it added.

Britain's public sector net debt is forecast to be 66.1 percent of GDP in the financial year ending in 2012.

Already, the Conservative-led coalition government is hoping to virtually eliminate Britain's current budget deficit with a £111-billion programme of tax rises and spending cuts over the next four years.

Britain is not a member of the eurozone, engulfed by a spreading debt crisis. Nevertheless, the OBR warned that Britain's public sector net debt could hit 100 percent of GDP by 2058 in the absence of action to tackle an ageing population.

In a bid to tackle an ageing population, the government last month unveiled plans to raise the retirement age for most public sector workers by six years to 66 and make them pay more towards their pensions.

-- Dow Jones Newswires contributed to this report --

© 2011 AFP

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