Can UK avoid the national debt nearly tripling in next 50 years

The Office for Budget Responsibility’s crystal ball shows that Britain will be a very different place in 50 years.

It is indeed grim. The government’s independent watchdog on spending predicts that if policies remain unchanged, national debt will rise from under 100% of gross domestic product (GDP) to 274% in the mid-2070s.

There is no doubt that, in the short-term, the OBR findings will be politically beneficial to the new Labor government. Darren Jones (chief secretary to Treasury) wasted no time stating that the report validated the actions taken by Rachel Reeves to repair public finances.

Labour, on the other hand, will have to deal with the same problems as the previous government in the long run: how to balance the upward pressures of an ageing populace, the need to combat climate change and the demands of voters for better services, while also balancing an economy that is misfiring ever since the global financial crisis.

These pressures will likely intensify. According to past trends, the UK is likely to experience a recession in every decade over the next 50-year period, and each recession will increase the debt ratio by 10 percentage points. By 2070, the UK’s population is expected to grow by 13 million people (from 68 to 82 millions), with two thirds of that increase coming from those 65 and older. At this age, health costs start to increase dramatically for every person.

In 50 years, the public health expenditure is expected to nearly double as a result. It will go from 7.6% to 14.5% of GDP. If the triple lock is maintained, pension spending will increase from 5.2% to 7.9% of GDP.

The OBR correctly notes that Britain is not the only country facing debt pressures. The OBR also emphasizes that it’s projections are subjected to substantial uncertainty and should not be viewed as exact forecasts.

The UK is not in a great place to begin. The UK’s debt-to GDP ratio has tripled in the last decade. Public spending is now at 45%, its highest level since mid-1970s. Taxes are also at their highest point in 70 years.

The OBR states that no government will allow the debt to reach this “unsustainable” level. In reality, tough measures would be taken in order to stop the national debt from reaching 274% of GDP. To return debt to pre-pandemic levels, it would take an average of 1.5% GDP per decade for the next 50 year.

The report does not portray a bleak picture. The debt ratio would be reduced by 40 percentage points if the population’s health was improved. The OBR estimates that net migration, which is estimated to be 315,000 per year on average, would reduce the debt ratio by the same amount.

The real game changer would be to improve the UK’s performance in the economy. The OBR estimates that productivity will grow at an average of 1.5% per year over the next 50-year period. However, it says that for every 0.1-point increase above this level, the ratio of debt to GDP would drop by 25 percentage points. If productivity growth averaged 2,5%, then the national debt could fall to 65% by mid-2070s.

It is possible, especially if technology changes like artificial intelligence improve efficiency. But it’s a big ask. In the past, the OBR points out that governments used the increased revenue from faster growth for public spending. If this pattern were to repeat itself in the future, then the ratio of debt to GDP would fall by only 60 percentage points.