In mid-July the Office for Budgetary Responsibility (OBR), the independent forecaster of the economy and public finances, published its annual Fiscal Sustainability report. The purpose is to identify whether and when changes in government policy may be necessary to move the public finances from an unsustainable to a sustainable path. The report paints a bleak picture for the UK’s economic recovery without further Government intervention and highlights spending related to population ageing as the key driver of this bleak economic future.
According to the OBR, in order to compensate for the demographic pressures and keep the national debt in 2060-61 at its pre-crisis level of 40% of GDP, another £17bn of savings will have to be found in 2017/18. This assumes that it is imperative to return to pre-crisis levels of debt to GDP. While this long-term aspiration is desirable there is much dispute within economic circles about whether this needs to happen quite so quickly.
It also suggests that maintaining benefits to which people are currently entitled will create a £65bn hole in the budget deficit between 2016/17 and 2061/62 and that health spending will need to increase from 6.8 per cent of GDP in 2016-17 to 9.1 per cent of GDP in 2061-62.
At first glance the figures look worrying and clearly difficult decisions lie ahead. Highlighting the need for these decisions is important – focusing the blame on ageing is unhelpful.
When you look at the detail in the report the impact of ageing is not as doomsday as the OBR make out.
The outlook has not significantly changed from last year, in fact it has got slightly better – and this is during a period of poor growth.
A key driver of the OBR’s central projection is health and social care related spending. The OBR takes the very pessimistic assumption that as life expectancy increases, so will the number of years in ill health. I would question this assumption and point to the fact that this is completely modifiable through cost-effective measures that promote independence and active ageing (for example better investment in prevention of disease and disability). Increasing life expectancy does not necessarily equate to increasing years in ill health.
Moreover, age is a ‘red herring’ when it comes to prediction of health care spending; what is much more relevant is proximity to death. As such the OBR is in danger of perpetuating the unhelpful message that huge increases in spending on health are the result of more older people. In fact, increasing longevity is related to public spending, but it is not driving it. It’s also the case that a lot can be done to modify this spending and this is not reflected in the projections.
We’re all ageing and successive generations are living longer than the last: this should be celebrated, but we also have to acknowledge as society that we all have to pay more for this privilege. The way forward is to invest in our ageing population, re-designing health services to meet their needs more efficiently, encouraging employers to make the most of the skills of an ageing workforce and helping individuals to plan and save for their own retirement.
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