Britain's ageing population will throw a spanner in the works for George Osborne's new budget Surplus Rule.
According to the Office for Budget Responsibility (OBR), a rise in the proportion of people over working age will wipe out surpluses unless changes are made to taxes and spending.
The warning comes after the chancellor unveiled the plan in his annual Mansion House speech yesterday evening, which will require governments to make sure they are not spending more than the are earning in “normal times”.
In its annual Fiscal Sustainability Report, the budget watchdog said the UK is likely to only stick to the requirement for a few years, and that it will end up breaking it as soon as 2023 because of pressure placed on public services by an ageing society.
It suggests taxes will have to be raised sharply or public spending will have to be cut further for the economy to cope in the short turn, and that by 2050 even these won't be able to keep the budget in surplus.
In response to the report, the Treasury said:
Our deficit is less than half what it was, but [today’s] report from the OBR clearly shows the hard work that needs to be done to fix the public finances and deliver economic security and prosperity for working people.