The welfare state faces a demographic time-bomb due to an ageing population and rising healthcare and elderly care costs. While there are currently 3.6 working age people for every pension age person, this is set to fall to 2.4 people by 2050, PwC said.
Fiscal contraction of 1.3 per cent of GDP, or around £20bn per annum, is necessary by 2020, the report says, while the state pension age will need to hit 70 by 2046.
If the pension age was increased without fiscal consolidation, state debts would total around 80 per cent of GDP by 2050. With the fiscal plans, debts should drop to pre-crisis levels of below 40 per cent, the report says.
Government debts reached £920.9bn in May, equivalent to 60.6 per cent of GDP. The government’s fiscal watchdog expects the debt to surpass 70 per cent of GDP within the current parliamentary term.
“The government’s cuts plan does not go far enough,” commented Ruth Porter of the Institute of Economic Affairs.
“Spending must be reduced to significantly lower levels for the sake of generational justice and economic growth.”