Why debt could reach 300 per cent of GDP by 2070

The UK’s debt-to-GDP ratio has now breached 100 per cent for the first time since 1961, thanks to the economic impact of the pandemic, rising inactivity, higher interest rates and soaring energy prices. Although this figure looks stark, the Office for Budget Responsibility (OBR) warns that things could get far worse. According to the fiscal watchdog, an ageing population, climate change and geopolitical tensions could ultimately see debt rise above 300 per cent of gross domestic product (GDP) by the 2070s. That brings to mind Japan, whose own debt to GDP ratio of around 240 per cent in currently the highest in the world. 

OBR forecasts suggest that state pension spending will almost double to 8.6 per cent of GDP by 2070 as the population ages, due to an increased number of retirees relying on pension schemes and social security for their income. The watchdog calculated that the switch to electric vehicles could result in £13bn a year of lost fuel duty by 2030, while decarbonisation initiatives could cost £17bn a year by the end of the decade. The OBR warns that the factors dragging on their 50-year projections “no longer loom in the distance… but pose significant risks in this decade”.