UK fiscal watchdog: Government finances “increasingly exposed” to global shocks
The boss of the Government’s fiscal watchdog has warned the UK’s public finances are “increasingly exposed.”
The Office for Budget Responsibility boss boss Richard Hughes said that two major crises – the global financial crisis in 2008 and the Covid-19 pandemic – had added 20 per cent each to the UK’s debt to GDP ratio.
Hughes also warned in an interview with the BBC this morning that the UK’s public debt – around £2.2 trillion – was also more tied to inflation, which is expected to increase this year.
“It used to be the case that countries could inflate their debt away, but that is less and less the case.
“We’ve got a shorter average maturity rate, and more of our debt is directly linked to inflation, and that means (interest) goes up automatically with a rise in inflation.”
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Spending
Hughes pointed to the triple lock on pensions as an example of the fiscal risks to the UK’s public finances.
The Bank of England predicts that earnings growth could be as high as 8 per cent this year, which would trigger an increase in the state pension.
That alone could cost the Government an additional £3bn a year, Hughes said.
Hughes did say that the Government was still pushing to bring day-to-day spending down, but warned that legacy issues around the Covid-19 pandemic with regards to healthcare, transport, and education which were not already costed into plans could lead to spending pressures spiralling.
Those additional costs could tally £10bn a year, which Hughes said would either need to be absorbed into the deficit, by spending falling elsewhere, or by tax increases.
“There are pressures that need to be addressed,” Hughes said.
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