John Hawksworth, PwC's chief economist, commented:
"The OBR's latest fiscal sustainability report contains a wealth of useful information, but reaches broadly similar conclusions to last year's report, namely that further tax rises or spending cuts, over and above the austerity programme already announced, will be needed in 2017 or beyond to meet the upward pressure on NHS, long term care and state pensions spending from an ageing population.
"However, the OBR's estimate of the scale of the additional fiscal tightening needed in 2017/18 to get public debt back down to 40% of GDP by 2061/62 has been scaled down slightly from 1.5% of GDP (£22 billion in today's terms) in last year's report, to around 1.1% of GDP (£17 billion) in today's report. This is primarily due to the additional real spending cuts in 2016-17 announced by the Chancellor in his Autumn Statement last November, together with smaller effects from public sector occupational pension reforms and a faster planned rise in the state pension age to 67 by 2028 rather than 2036 as planned by the previous government.
"We broadly agree with the OBR's projections, although we think that health spending may rise somewhat faster than they assume in their central case in the long run due to a combination of relatively low labour productivity growth in that sector and increasing demand for publicly funded health care as medical technology advances. The OBR report also recognises the potential significance of these factors in their sensitivity analysis.
"Taking account of these additional pressures on NHS spending, we estimate that the additional tax rises or spending cuts needed in 2017 or later to bring public debt back down to 40% of GDP in the long run might be around 1.7% of GDP (around £26 billion in today's terms). We estimate that this additional fiscal squeeze could be scaled back to around 1.3% of GDP (around £20 billion in today's terms) if the government was also to increase state pension age to 70 by 2050, rather than 68 as assumed in the OBR projections. The latter change would be consistent with the government's stated principle that state pension age should continue to rise beyond 2028 in line with increasing life expectancy."
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