Radical reforms to healthcare and pensions policy are needed

Philip Booth comments on today’s Office for Budget Responsibility Fiscal Sustainability Report

Commenting on today’s Office for Budget Responsibility Fiscal Sustainability Report, Philip Booth, Editorial and Programme Director at the Institute of Economic Affairs said:

“This report shows the severe difficulties governments will face over the coming decades resulting from the promises made via the post-war welfare state. The OBR’s central projection, which assumes that the deficit is cleared within four years, shows that debt will start rising again from the mid-2030s and will be back up to 84% of GDP by 2063/64 if policies remain unchanged.

“Even this projection is based on the heroic assumption that productivity improvements in healthcare will be the same as in the rest of the economy over the next five decades. More realistic assumptions about health productivity growth would see public debt explode to over 200% of GDP. This problem will be intensified if the government continues to protect healthcare spending up to 2018/19.

“Whilst there have been welcome changes to the state pension age, the OBR’s report shows other areas where new government liabilities have been created that will have an impact on future generations of taxpayers[1]. The triple lock on the state pension and the abolition of contracting out of state pension schemes are two further policies which worsen the long-term fiscal outlook. If the government is serious about our long-term fiscal health, the ring-fence on healthcare spending should be removed and policy should promote private provision and pre-funding of healthcare and retirement incomes.”

[1] See Table 2.18: http://budgetresponsibility.org.uk/fiscal-sustainability-report-july-2014/

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Notes to editors:

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