OBR report spotlights “next financial crisis” says Institute for Government

Written by Jim Dunton on 20 January 2017 in News
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Think tank deputy director Julian McCrae says dealing with impact of the ageing society will be a dominant domestic task for Whitehall over the next 15 years

 

The Office for Budget Responsibility’s latest long-term Fiscal Sustainability Report has underscored the centrality of the UK’s ageing population to the nation’s economic health over the next decade and a half, the Institute for Government’s deputy director has said.

This week the watchdog said future governments were likely to need to raise taxes or cut services over and above the current government’s plans in order to “address the fiscal costs of an ageing population and upward pressures on health spending”.

IfG deputy director Julian McCrae said it was clear that the health and social care needs of the “baby boomer” generation would be the “dominant issue” for the public finances over the next decade and a half, overlapping with the resolution of the last decade’s financial crisis.


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The OBR report said the pressures on health spending would be “significant”, and more money would be required for new technological advancements and dealing with the rising prevalence of chronic health conditions.

It said that while revenue would remain roughly stable, government would end up having to spend more as a share of national income on pensions and health care, widening budget deficits and putting public sector net debt on an “unsustainable upward trajectory” without further spending cuts or tax rises.

The OBR's forecast suggested the deficit will rise from 0.7% of GDP in 2020-21, to 1.8% by the end of the next parliament, although that does not take account of further tax rises and spending cuts the government might bring in.

McCrae told Civil Service World that the kind of pressures being seen with NHS hospital services in the first few weeks of this year would be a taste of things to come unless services were reconfigured to cope better with the ageing society.

“The government has been putting quite a lot of money into hospitals, and not the rest of the service. Hospitals have been the cuckoo in the NHS’ nest – but we’re still seeing hospitals finding it very, very difficult to keep up with demand for services,” he said.

“A little bit of that is from spending cutbacks on social care, which means people living with ‘quiet conditions’ now make more use of hospital services.”

McCrae said that tight economic squeezes, like the financial crash of 2008, typically took a decade and a half to recover from and the new deficit-eradication timescale outlined by chancellor Philip Hammond last year appeared to underscore such thinking.

“The politics hasn’t caught up – it’s continuing with the issues of 2008 and isn’t yet looking forward to the big new issue coming forward,” he said. 

“To do that, we need to continue managing demand [for hospital services] down.” 

While immediate departmental pressure of the ageing society might be most sharply felt by the Department of Health and the Department for Communities and Local Government, McCrae said the knock-on effects on the rest of Whitehall should not be underestimated.

He cited the Department for Work and Pensions as one area where additional strain would be felt.

 

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