Extra Government spending cuts in pipeline, warns OBR

13 July 2012

The UK Government will have to make further spending cuts or raise taxes in order to keep the country's national debt in check, the Office for Budget Responsibility (OBR) has said.

The OBR's chairman Robert Chote warned that at least £17 billion of additional taxes or spending cuts would be needed in 2017 in order to get Britain back to pre-crisis levels. It estimates that this would take the total debt back to 40 per cent of GDP by 2061.

However, its annual Fiscal Sustainability report stated that the country's outlook had 'improved' from last year's estimations. "This is primarily because the Government has responded with additional projected cuts in spending," it said.

Robert Chote highlighted that there were 'big uncertainties' around the estimations and that challenges still remain.

An aging population forms the biggest upward pressure to public finances. The Government as a result would end up having to spend more on age-related items such as pensions and health care.

The additional cuts to public spending would come on top of the current £123 billion austerity programme.

Talking to the Telegraph, Robert Chote said: "Even when the pain of the current fiscal repair job is complete, future governments might need to do a little bit more in spending cuts or tax increases to put us towards a long term sustainable path."

Chief secretary to the Treasury, Danny Alexander, said the Government was committed both to strengthening the UK's fiscal position and long term sustainability.

The report includes the first official forecasts of savings made by the Government's recent public service reforms. The OBR estimates the reforms will cut the cost of pensions for the Treasury by 40 per cent - a saving of around £420 billion in current GDP over the next 50 years.

"This shows that the deals confirmed last week are good for taxpayers, as well as public sector workers, who will continue to receive pensions that are among the very best available, providing a guaranteed pension level for all members," Danny Alexander said.