The UK’s public finances are in a “very risky period” after a series of major shocks that have driven the nation’s borrowing costs to rise at the fastest rate in the G7, the Treasury’s tax and spending watchdog has said.
The independent Office for Budget Responsibility said national debt could surge to more than 300% of gross domestic product (GDP) by the 2070s, up from about 100% today, and said the government was not taking measures to make big changes in the short term.
It said the government faced a “number of challenges” in meeting Rishi Sunak’s target to get the national debt falling as a share of national income within five years.
Despite promises made by successive Conservative-led governments to reduce Britain’s debt pile, the OBR said the objective was only achieved in three out of the last 12 years – and by a relatively small 3.4 percentage points in total.
In a downbeat assessment in its latest fiscal risks report, the OBR said other governments were also facing heightened pressure on their public finances from rising global interest rates pushing up the cost of servicing debt.
However, it warned the UK had the highest level of inflation-linked debt among G7 economies, making it more vulnerable to shocks, with debt interest costs rising in the UK at twice the pace of any country in the club of advanced economies between 2019 and 2022.
Rachel Reeves, the shadow chancellor, said: “This report just how far we are falling behind our peers, how exposed our economy is and again highlights that the government is failing to take action in areas like energy security to help get bills down.”
With the public finances under growing strain and inflation stubbornly high, ministers have moved in recent weeks to consider further pay restraint for the public sector and ordered government departments to find further savings.
At the start of the year Sunak centred three of his five priorities on the economy: halving inflation, growing the economy, and getting debt falling.
However, leading economists said failure on his top priority to reduce inflation was placing all three in danger, as the Bank of England’s rapid rate rises increase the prospect of a recession, and as higher inflation and borrowing costs add billions of pounds to the government’s debt interest bill.
The UK government’s cost of borrowing on the international debt market has risen to the highest level since the 2008 financial crisis in recent weeks – surpassing the level during the turmoil of Liz Truss’ premiership.