Without expenditure cuts and tax increases, the UK’s debt is on a “unsustainable path,” the government’s independent forecaster has warned.
According to the Office for Budget Responsibility (OBR), pressures from an aging population and rising energy prices might push the UK into a recession.
According to the OBR, switching to electric vehicles from fossil fuel-powered ones might reduce tax receipts.
It predicted that in 50 years, debt levels might more than triple.
Interest rates are rising as a result of high inflation. They reached £7.6 billion in May, the greatest monthly total ever and an increase of £3.1 billion over the previous year.
The government has already spent 1.25 percent of GDP this year, according to the OBR’s fiscal risks and sustainability report, helping people deal with the cost-of-living problem as much as it did to assist the economy during the 2008 financial crisis.
According to the OBR, raising taxes, cutting expenditure, or a combination of the two would be required to reduce debt to 75 percent of GDP, the level at which it stabilized in the government’s March 2020 Budget prior to the epidemic.
The OBR stated that the public debt is on an unsustainable path in the long run due to the demands of an aging population on expenditure and the loss of existing motor vehicle levies in a decarbonizing economy.
Beginning in 2030, the government intends to prohibit the sale of new gasoline and diesel vehicles. Currently, fuel taxes are a significant source of tax income.
Debt is the total sum of money the government owes that has accumulated through time.
It was £2.36 trillion in May 2022. Debt has reached 95.8 percent of GDP, which is almost larger than the size of the UK economy (GDP).
According to the OBR, the ongoing conflict in Ukraine, the nation’s growing energy costs, and long-term financial strain “add up to a tough prognosis for current and future administrations as they manage the public finances through certain future shocks,”
There are still many threats to the fiscal outlook, including rising inflation that could push the economy into a recession, ongoing uncertainty about our future trading relationship with the EU, a resurgence in Covid cases, a changing global environment, and rising interest rates, according to the report.
Costs for gasoline, food, and energy are currently rising, which is hurting households. With inflation reaching 9.1 percent, prices are climbing at their quickest rate in 40 years.
According to a BBC-commissioned poll, it has caused many individuals to reduce their expenditure, particularly on food and travel.
It has also increased worries that the UK may experience a recession, which is defined as a decline in the size of the GDP for two straight quarters.
The energy price problems right now, according to the OBR, might not be as terrible as they were in the 1970s.
“There are reasons to believe that the overall impact on inflation, output, and unemployment will be less severe and less persistent this time around,” it added. “While the oil crises of the 1970s saw global energy prices rise by a similar magnitude as we have seen in the wake of the pandemic and Russian invasion of Ukraine.