Various recent discussions have touched upon the state of the UK public finances, in relation to matters such as pensioners' winter fuel allowance, public sector pay, and public funds available for investment in transport infrastructure.
Today the Office for Budget Responsibility has published its fiscal risks and sustainability report, postponed because of the recent General Election. It is here:
obr.uk
The report sets out projections for the next 50 years. I haven't read it all, but I have looked at the executive summary and chapter 4 of the report.
Chart 1.1 in the executive summary shows the central projections for government revenue and expenditure (this is repeated as chart 4.8 in chapter 4). Chart 1.10 shows what the increase in debt does to interest payments.
I haven't looked at chapters 2 and 3 in detail yet.
The parts of Chapter 4 looking at population and productivity are particularly interesting. Population is at the start of chapter 4.
Chart 4.1 shows the difference for the UK population projections depending on whether the ONS projections of net inward migration are used, or whether zero net inward migration is assumed. I would have liked to have also seen a "middle" projection based on net inward migration gradually declining to zero.
Chart 4.2 shows that net births and deaths will forecast to make a negative contribution to population growth from the mid 2030s. This leads to the fall in UK population on the zero net inward migration assumption.
Chart 4.3 shows how the population age structure might change (this is also in the executive summary as chart 1.8).
I really like chart 4.6 which shows government receipts and spending by age group, this is really important for understanding the impact of demographic changes on the economy (this is also in the executive summary as chart 1.9).
The productivity part begins at paragraph 4.44.
Chart 4.18 shows what has been happening to productivity since the 1970s.
Chart 4.19 shows why productivity really matters. At 2.5% productivity growth, like the UK had through to the 1990s, the net debt is sustainable. The chart also shows projections with 1.5% productivity growth, like in the 2000s, or 0.5% productivity growth, like in the 2010s, with increases in net debt that are not sustainable.
Paragraphs 4.54 onwards then discuss what might need to happen in order close the "fiscal gap" (a better name than black hole!) in order to keep the public finances on a stable trajectory if 2.5% productivity growth can't be achieved. I shall end by quoting paragraph 4.54 in full. You have been warned!
Today the Office for Budget Responsibility has published its fiscal risks and sustainability report, postponed because of the recent General Election. It is here:
Fiscal risks and sustainability – September 2024 - Office for Budget Responsibility
The latest update of our assessment of the current pressures on the public finances was published in our Fiscal risks and sustainability report. Read the Executive summary for the key points from our analysis or the full report below. Chapter 2 builds on our previous work on climate change...
obr.uk
The report sets out projections for the next 50 years. I haven't read it all, but I have looked at the executive summary and chapter 4 of the report.
Chart 1.1 in the executive summary shows the central projections for government revenue and expenditure (this is repeated as chart 4.8 in chapter 4). Chart 1.10 shows what the increase in debt does to interest payments.
I haven't looked at chapters 2 and 3 in detail yet.
The parts of Chapter 4 looking at population and productivity are particularly interesting. Population is at the start of chapter 4.
Chart 4.1 shows the difference for the UK population projections depending on whether the ONS projections of net inward migration are used, or whether zero net inward migration is assumed. I would have liked to have also seen a "middle" projection based on net inward migration gradually declining to zero.
Chart 4.2 shows that net births and deaths will forecast to make a negative contribution to population growth from the mid 2030s. This leads to the fall in UK population on the zero net inward migration assumption.
Chart 4.3 shows how the population age structure might change (this is also in the executive summary as chart 1.8).
I really like chart 4.6 which shows government receipts and spending by age group, this is really important for understanding the impact of demographic changes on the economy (this is also in the executive summary as chart 1.9).
The productivity part begins at paragraph 4.44.
Chart 4.18 shows what has been happening to productivity since the 1970s.
Chart 4.19 shows why productivity really matters. At 2.5% productivity growth, like the UK had through to the 1990s, the net debt is sustainable. The chart also shows projections with 1.5% productivity growth, like in the 2000s, or 0.5% productivity growth, like in the 2010s, with increases in net debt that are not sustainable.
Paragraphs 4.54 onwards then discuss what might need to happen in order close the "fiscal gap" (a better name than black hole!) in order to keep the public finances on a stable trajectory if 2.5% productivity growth can't be achieved. I shall end by quoting paragraph 4.54 in full. You have been warned!
