• The government’s finances are currently on an unsustainable trajectory.


• Whilst current levels of government debt are below the levels seen in previous periods in history, accumulating such large levels of debt during a long period of peacetime is more or less unknown.


• Government debt figures do not include commitments to future spending either: governments do not account in the same prudent way that companies are required to account. An ageing population means that on unchanged policies the cost of providing age-related spending such as healthcare, pensions and social care will rise substantially over the next five decades, sending overall debt on an upward trajectory.


• According to the government’s own Office for Budget Responsibility (OBR) a permanent fiscal adjustment (tax increases and/or spending cuts) of 1.3 per cent of national income will be necessary from 2018/19 in order to ensure that the debt-to-GDP ratio falls to 20 per cent by 2063/64.


• However, the OBR figures make heroic assumptions about healthcare productivity and also assume that there will be a fiscal adjustment of 5.2 per cent of national income before 2018/19. In other words, spending needs to be cut by around 6.5 per cent of national income from now and for the foreseeable future to hit a government debt target of 20 per cent of national income by 2063/64. Such a measure will not create room to reverse recent tax increases.


• If more realistic assumptions about healthcare productivity, immigration and spending priorities are made, spending would need to be cut by 9.6 per cent of national income now and for the foreseeable future to hit a debt target of 20 per cent of national income in 50 years’ time. This is equivalent to about one quarter of all government spending or one half of all social protection spending. Other approaches to the analysis of the public finances reach similar conclusions.


• During its term of office, the government has taken action that has affected the long-term fiscal position detrimentally. Abolishing contracting-out of the state pension system, the implementation of the ‘triple lock’ on pension increases and ring-fencing health spending have been especially unhelpful.


• The government’s long-term fiscal position would be improved by following a combination of the following policies:

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Philip Booth

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Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

Ryan Bourne

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Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.