The age of austerity has recently notched up its first year, with the full impact of public spending cuts only beginning to be felt. But could permanent austerity be in prospect, at least in our lifetimes?The age of austerity may need to be prolonged and intensified in order to deal with the consequences of rising life expectancy, according to the Office for Budget Responsibility's (OBR) Fiscal Sustainability Report.
The OBR finds that further cuts to public spending and further hikes in taxes could be required to offset the economic burden of providing for the UK's ageing population.
The report includes economic projections for the next 50 years, which "suggest that the public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population. [T]he Government would end up having to spend more as a share of national income on age-related items such as pensions and healthcare. But the same demographic trends would leave Government revenues roughly stable as a share of national income."
The Financial Times provides the following summary
of some of the report's conclusions:
[B]y the 2020s a rapidly ageing population will cause serious problems. Retirement ages need to rise not only because state pensions cost so much: unless older, healthy adults keep working, UK output will fall, along with the nation's revenue base.UK HR blogger Rick - author of the Flip Chart Fairy Tales blog - offers a sobering assessment of the picture of the future painted by the OBR report:
The welfare state has peaked. Historians will see it as a blip, enabled by the extreme wealth of a small number of countries during a relatively short period. [...] Perhaps calling the next few decades the Age of Austerity is a bit pessimistic but, compared to what we have been used to, it will be an age of higher taxes, higher public debt, higher retirement ages, lower welfare entitlement and less comprehensive public services.The OBR report suggests that - if no action is taken - Government debt could be running at 107% of gross domestic product (GDP) by 2060/2061. The OBR concludes that "offsetting tax increases or spending cuts" are required to counter these trends. The report's conclusion includes the following words:
The main lesson of our analysis is that future governments are likely to have to undertake some additional fiscal tightening beyond the current parliament in order to address the fiscal costs of an ageing population.While it is not necessarily probable that economic austerity measures will remain a permanent fixture during our lifetimes, it is certainly possible.
- The image used on this page is a detail from PostcardTaftPensionExaminer1912.jpg, sourced from Wikimedia Commons.
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