Rising health care costs could lead to a ‘steady and unsustainable deterioration’ in public finances unless the Government takes policy action, new analysis has warned.
The latest Fiscal Sustainability Report (FSR) from the Office for Budget Responsibility reveals that the increase in heath spending will make it harder for the chancellor to balance the budget in the next Parliament.
The OBR forecasts that health spending will rise from 6.9% of GDP in 2021-22 to 12.6% of GDP in 2066-67.
The report states: ‘With tax and other revenues projected to remain broadly flat as a share of GDP, these trends would see a steady and unsustainable deterioration in the public finances without a policy response.’
It also predicts public sector net debt will rise from 0.7% of GDP in 2021-22 to 16.6% of GDP by 2066-67, lifting public sector net debt from 82 to 234% of GDP. This, the OBR said, will mean additional tax increases and spending cuts worth £30bn a year from the early 2020s will be required to get the debt back to 40% of GDP.
‘The fiscal challenge from rising health care costs – assuming that future governments spend more to accommodate them – is substantial over the longer term, but they would also make the current chancellor’s nearer-term goal of balancing the budget in the next Parliament harder to achieve,’ the OBR warned.
