This week’s blog looks at the implications from the UK government’s Office for Budgetary Responsibility (OBR) report on the fiscal outlook for the UK into the late 2050s. In particular, we look at the choices government will be forced to make and the knock-on effect for the private sector.
Long term forecasts such as this are, of course, by their very nature subject to huge uncertainty and assumption, as indeed the OBR acknowledge. It also has to be said that the amount of fiscal consolidation required varies widely depending on whether you target a fiscal surplus or break even.
What is not in doubt, however, is that the issue of government debt and austerity is here to stay for the foreseeable future. Currently the recent economic crisis and its aftermath are focusing the government’s attention and it is likely that the impact of this will, even assuming that the government is successful in its debt reduction strategy, be seen in the levels of public debt for many years to come.
Over the last few years and indeed at present health and social care have been growing proportions of UK public spending. Given the current situation, areas such as defence and policing have come under strain as the government attempts to at least partially protect areas such as health from the funding squeeze.
On top of this, however, the OBR forecasts further highlight the twin effects of an ageing population in terms of increasing health and social care and reduced proportion of the population available to pay for this.
This also raises important questions for the future in terms of priorities. This will either require choices to be made between vital services such as health and education, or fundamentally rethinking of the role of the state in these vital services.
In reality, of course, both of these are likely to happen and indeed the recent changes to the UK government’s funding of Higher Education illustrate this. The OBR’s forecasts therefore highlight the fundamental debate that the UK will have to have in the coming years over the balance between public and private sectors.
The outcome of this will undoubtedly not be even across the UK and Wales is currently particularly vulnerable given its relatively higher reliance on the public sector. Whilst the focus may currently be on public sector spending, however, the reality is that this also reemphasises the long term importance of economic development policy, enterprise and innovation, if the economy is to generate the resources required to fund its vital public services.
The public resources available to support this activity, however, seem likely to be constrained over the medium to long term. This makes it ever more important that approaches, such as city regions , are used to lever the greatest benefit from resources that can be accessed from a networked approach.