OBR reveals Britain’s finances in dire straits after coronavirus

by Tom Ryan, researcher at the TaxPayers' Alliance


The Office of Budget Responsibility (OBR) released a report on Tuesday that warns public debt could reach levels not seen since the 1950s if the government does not get a handle on borrowing. 


The pandemic has expanded government debt to ludicrous levels. The OBR found that the UK had seen the fourth largest increase in debt out of 35 advanced economies, after Canada, Norway and Singapore, and one of the deepest recessions of the advanced economies. In fact, with GDP falling by 10 per cent, the recession has been twice as bad as the average for advanced economies.


The chancellor should take this report as a warning sign that the government needs to fight their prime minister’s spendthrift instincts. Rishi is well aware of some of the obvious battles. The ‘triple-lock’, which alone looks to increase spending by £3 billion, should be scrapped or at least suspended in order to get a handle on the problem. Another candidate is the £200 million Royal Yacht, which demands a ridiculously high premium for soft power at a time of hard problems. But the astronomical level of debt is going to require a much bolder approach.


The UK national debt is a ticking time bomb. Accounting for health, education and transport alone, the OBR found unfunded long-term costs of the pandemic which will reach £10 billion over the next three years. Debt could slow growth and become a disaster due to increased borrowing costs if interest rates return to historically normal levels; so far the government’s plans are based on the assumption that they will not. 


The government must realise that plans and commitments made before the pandemic are no longer viable. Government debt is growing precipitously, and it can no longer rely on inflation to whittle away the burden. This is a very precarious position to be in. In the OBR’s view, it is possible that by 2050-51, high levels of borrowing could push the debt-to-GDP ratio in the UK to 139 per cent - the highest since 1954-55. 


And the pressures will come thick and fast. The OBR also noted that government departments have not made spending provisions for long-term pressures created by the coronavirus. In fact, departmental spending plans do not account for virus-related expenditure at all after this financial year. This is a familiar tale. Earlier this year the TaxPayers’ Alliance found that the state pension and many public sector pensions account for £6.8 trillion, but are not included in official government debt statistics because they are only reported when they come due. 


These long-term liabilities need to be tackled. An 8 per cent rise in the state pension has to be the first thing to go. Although Boris will be reluctant to renege on such a notable campaign promise, in the wake of the pandemic, a huge cash handout for pensioners is simply unaffordable. And the same can be said of the demands for rises in foreign aid, benefits or local authority spending which are sure to come.  

With both hidden and visible government debts spiraling out of control, ministers must start dealing with the problem. It’s an unenviable task to start controlling expenditure after an unprecedented period of reliance on government, but it has to be done. At the TaxPayers’ Alliance, we’ve got plenty of ideas of where they can start.

This website uses cookies to ensure you get the best experience.  More info. Okay