Last week’s public-finance statistics were truly dreadful. They showed that despite a year of fairly robust economic growth, UK government borrowing since the start of the financial year 2014 to 2015 was actually 10 per cent higher than in the same period in 2013 to 2014. Once again, it seems, our public finances will be in deficit by more than £100 billion this year.
Running sustained deficits of this kind adds to the overall debt burden. According to the new ONS figures, public-sector net debt is currently £1.45 trillion (79.9 per cent of GDP) – meaning we are paying just over £50 billion per year in debt-interest payments. Whilst debt levels on this scale are not unprecedented historically, accumulating such large levels of debt during peacetime is more or less unknown.
The long-term challenge of keeping debts at a sustainable level is greater still. The debt figures we hear quoted in the media are backward-looking. They do not include the spending commitments that governments have made to future generations. This is especially problematic because an ageing population means that, on unchanged policies, the cost of providing age-related spending will rise substantially over the next five decades – pushing debt levels higher.
Each year the Office for Budget Responsibility (OBR) publishes its fiscal sustainability report, which highlights the scale of this long-term challenge. It always reaches the same conclusion: that the long-term path of the government’s public finances is unsustainable. This year, for example, it suggested that even if the government met its deficit reduction targets through to 2018 to 2019, by the mid-2030s net debt would begin rising again and would be back up to 84 per cent by 2063 to 2064. On unchanged policies, this would be driven by an ageing population leading to higher demands on healthcare, pensions and social-care spending.