The UK’s national debt could hit 300% of GDP by the 2070s because of the string of major challenges still facing national governments after a “rapid succession of shocks”, according to a report for the Treasury.
The independent Office for Budget Responsibility laid out how climate change, defence and the fact people were living longer all posed significant, and current, risks at a time when the public finances are already reeling from COVID, cost of living support and higher interest rates.
The national debt hit a 60-year high of £2.56trn in May – equivalent to 100% of national GDP for a year.
The OBR’s fiscal risks and sustainability report stated that the government’s plans for stabilising and then reducing debt as a share of GDP were relatively modest by historical and international standards.
That was despite a previous warning from the watchdog, in March, that the UK’s tax burden was on course to hit the highest level since the Second World War by 2027/8.
The report was delivered just hours after the latest grim set of stats covering the economy, with official figures for May showing a contraction for gross domestic product (GDP) of 0.1%.
Perversely, a flatlining economy is actually and temporarily good news for the government and Bank of England as both seek to bring down stubbornly high inflation.
Weaker demand in reaction to rising interest rates is what Bank policymakers are looking for before they can halt the tightening cycle that has resulted in 13 consecutive increases in Bank rate to date.
Rising interest rates, and market expectations for rates, are bad news for the taxpayer as well as wider borrowers, such as mortgage holders, as they have forced up the government’s borrowing costs.
Yields, the implied interest rate, on core 10-year bonds hit 2008 financial crisis levels earlier this month.
Many UK IOUs are linked to inflation, making the cost of servicing the existing debt pile worse.