The UK’s fiscal watchdog has said health costs are the biggest risk to the government’s spending plans.
The Office for Budget Responsibility’s (OBR) says the UK faces the challenge of an ageing population and the high cost of technological advances.
It also says: “Lifting current limits on public sector pay increases would pose a fiscal challenge.”
But on Brexit, the OBR says a large “divorce bill” for leaving the EU would not be a big threat to UK finances.
Instead it argues that trade agreements with the EU and other trading partners are more important for the long-term growth of the UK economy.
The OBR’s Fiscal Risks Report outlines a range of risks that the UK faces, and adds that the issues are complicated because the “ongoing challenges must be faced while negotiating Brexit and in an environment of ‘austerity fatigue'”.
The report outlines how important economic growth is to the amount of tax the country can collect. It says that over 50 years, an annual 0.1% fall in economic output would cause Britain’s debt-to-GDP ratio to be 50 percentage points higher.
The amount of money the Treasury collects in taxes each year also faces risks from the following factors:
- Fuel and tobacco duty are falling, as engine efficiency improves and smoking declines
- The rise in self-employment and incorporation (forming a company) has reduced receipts from income tax
- Policies to tackle tax avoidance and evasion have produced “a “relatively uncertain yield”
- Tax is coming from a smaller number of taxpayers, which makes the tax system more sensitive to downturns.
The 300 page report highlights risks across a wide range of government departments, and covers everything from foreign currency exposure to cost over-runs in infrastructure projects.
In the NHS it says spending on clinical negligence claims has doubled in cash terms over the past six years and has risen by almost half over the past two.
The reports adds: “There is a risk that greater pressures on medical professionals lead to higher numbers of incidents and future claims. This type of adverse feedback seems plausible”.
On the future cost of decommissioning nuclear power stations it says that estimates range from £95bn- £218bn.
It says: “While the numbers are big from the perspective of the department managing them they are less so from the perspective of the public sector as a whole. That said … the risk that annual spending rises by more than £1bn in any year is far from negligible.”
And it also covers the risks of “unanticipated events” which include everything from flu pandemics to coastal flooding and widespread electricity failure.
It says: “successive terrorist attacks have prompted debate over the funding of police and security services, while the number of tower blocks that have failed fire safety tests since the tragedy at Grenfell Tower could require significant sums to resolve”.
Under its charter, the Office for Budget Responsibility has to produce a report on fiscal risks every two years. The Treasury has to reply to the report within a year.