Pensions bill 'a threat to UK surplus': Office for Budget Responsibility warns Osborne spending on ageing population will push Britain back into red without further cuts
- OBR says ministers could be forced to abandon the ‘triple lock’ which pushes up the value of pensions
- This week Mr Osborne announced intention to pass legal requirement to run budget surpluses under ‘normal’ economic circumstances
- But OBR warned government will quickly go back into the red in coming decades because of extra costs from older people
George Osborne’s plans to force future governments to spend less than they raise in taxes was dealt a blow by the spending watchdog last night.
The Office for Budget Responsibility warned thatthe ageing population and generous pensions spending would push Britain back into the red without further swingeing cuts.
Robert Chote, the chairman of the OBR, warned ministers could be forced to abandon the ‘triple lock’ which pushes up the value of pensions.
George Osborne’s plans to force future governments to spend less than they raise in taxes was dealt a blow by the spending watchdog last night
This week George Osborne announced his intention to pass a legal requirement to run budget surpluses under ‘normal’ economic circumstances.
In his Mansion House speech he claimed the law would ‘move Britain from crisis and recovery, and towards a new settlement of responsibility and prosperity’.
But in a report yesterday, OBR warned that without further cuts, the government would quickly go back into the red in the coming decades because of extra costs linked to older people.
As a result of the lock, the basic State pension rises every year by inflation, 2.5 per cent or average earnings, whichever is higher.
Mr Chote said the lock puts ‘systematic upward pressure on pensions spending’ and ministers might have to make ‘choices’ about the policy in future.
Tens of billions more of further cuts or tax rises will be needed to keep spending levels below taxation revenues and ‘stabilise’ Britain’s mountain of debt, the OBR said.
It said the deficit – which ministers have said they will eliminate by the end of the decade - could reappear as soon as 2023 without further cuts or tax rises.
It predicts that in the next half century, health spending will rise by one third, the state pension by one quarter and the cost of social care by two thirds.
Overall, spending on people over 65 is likely to rise to one in every four pounds spent by the government, from less than one in five today.
Mr Chote told The BBC’s World at One that the ageing population ‘puts upward pressure on things like spending on state pensions on health care on long term care.
Robert Chote (above), the chairman of the OBR, warned ministers could be forced to abandon the ‘triple lock’ which pushes up the value of pensions
‘You’ve got some things going in the opposite direction the cost public service pensions, but overall the public finances do come under pressure as the population ages.
He added: ‘Our working assumption based on what’s happened in the past is the triple lock does put systematic upward pressure on pension spending as a share of GDP and that creates choices about that but also whether you might want to make savings elsewhere.’
The public finances will also be hit by declining North Sea oil revenues which will now result in revenues of just £2billion to the Exchequer instead of its previous prediction of more than £35billion in the two decades from 2020.
Overall debt stands at around £1.48trillion or 80 per cent of GDP – or £55,600 for every UK household.
Michael Johnson, of the Centre for Policy Studies (CPS), said an ageing population, coupled with ‘wretched’ unfunded promises such as the triple lock on State pensions would make it difficult for the Chancellor to achieve a surplus.
He said the ‘vast mountain of unfunded promises’, particularly those aimed at older voters over the next 30 to 40 years, would make it hard to significantly reduce the deficit.
Mr Johnson said: ‘The issues around the ageing population simply will not go away.
‘The situation will get worse because there will be more pensioners but also relatively fewer workers paying tax.
‘If the Government is going to get there [and achieve a surplus] they will have to target the lowest hanging fruit on the Whitehall tree and curb incentives for saving into a pension, including pension tax relief.’
He also criticised ‘farcical’ benefits for the elderly including free bus travel for all and the £10 Christmas bonus.
Angus Hanton, of the Intergenerational Foundation said: ‘Stopping the build-up of national debt is the least we can do for future generations, but the cutbacks needed for this should fall fairly across the generations.
‘We fear the cuts will fall disproportionately on younger generations while older, wealthier generations continue to be left unscathed and over-protected by the triple lock on pensions and generous pensioner perks such as winter fuel payments and pensioner bonds.’