Osborne fails to defuse tax timebomb

 
Tim Wallace
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GOVERNMENT finances are still stuck on an unsustainable path despite chancellor George Osborne’s efforts to cut the budget deficit, the Office for Budget Responsibility (OBR) warned yesterday.

The aging population means rising healthcare costs could cripple the state over the next 50 years unless the next government is prepared to implement an extra £17bn of spending cuts or tax rises in 2017, the independent analysts said.

And if governments delay this extra squeeze further, finances will deteriorate and debt interest payments rise until a future government is forced to deal with the problem – meaning the shock will be sharper the longer the government waits.

The current deficit reduction plan should mean the government will run a primary budget surplus for much of the 2020s – that is, before debt interest payments are taken into account – but will plunge back into deficit in the 2030s.

Without further changes, the national debt will rise to almost 90 per cent of GDP by 2060-61, according to the OBR’s central forecast.

Much of the problem comes because 26 per cent of the population will be over 65 years old in 2061, compared with just 17 per cent now, adding substantially to medical and care bills. However, the report did note that coalition reforms have reduced the burden of state sector pensions – by changing the uprating of pensions to use the consumer price index measure of inflation, not the higher retail price index, the government has saved roughly £126bn.