While geopolitical risks have dominated the headlines this week for the UK there has been a dire warning which has gone very much under the radar.

While Venezuela, Greenland and Ukraine have been the big talking points globally the UK has been warned it is now on track to see debt reach 330% of GDP by 2075.

The dire statistic comes from new modelling by the Adam Smith Institute which added the UK faces a structural debt spiral in less than a decade, with public debt-to-GDP accelerating from 2033. Eventually, this trajectory sees public sector net debt soaring to 330 per cent of GDP by 2075. If this were allowed to happen, the UK would likely require an international bailout, alongside unprecedented austerity measures.

The report added: “The problem is not short-term profligacy but long-run arithmetic. Britain has entered a period of high existing debt, weak trend growth and an ageing population. Pension and health spending rise automatically, while a shrinking workforce limits tax receipts. Even if interest rates fall back from current peaks, debt will continue to escalate.”

With anaemic growth and borrowing costs structurally higher than in the 2010s, it is now the case that deficits that once looked manageable now spiral out of control.

“Delaying adjustment will be costly: stabilising debt today would require permanent spending restraint of about 4% of GDP, but postponing action by a decade raises the required adjustment by roughly 15 per cent,” it  added.

The report continued moderate fiscal adjustment and supply-side reform can prevent this disaster. If productivity growth returned to the heights achieved under Thatcher and Major and health and pension spending were structurally reformed, including ending the state pension triple lock, debt could be stabilised and eventually fall, creating room for broad based tax cuts.

Mitchell Palmer, economist of the Adam Smith Institute, said: “People are right to be worried by the scale of the problem facing Britain’s public finances. It is completely unsustainable.

“On the current trajectory, the UK government will owe more than three times the nation’s annual economic output by 2075. Without early, decisive action to bring down the deficit and increase growth, Britain will spiral towards higher taxes and weaker living standards.

“The only credible way out of this damning predicament is faster economic growth and serious restraint in public spending. Delaying reform simply locks in more pain for the future.”

It is  not the news the UK government or its financial sector may want to hear particularly as the reverberations in recent events across the Atlantic have yet to fully play out.

Jon Guy, Editor

Emerging Risks