Britain will need another £65 billion in tough austerity measures to manage the impact the ageing population has on its already-creaking public finances, the tax and spending watchdog warned today.
In its annual fiscal sustainability report, the Office for Budget Responsibility (OBR) said extra tax hikes or spending cuts will be needed from April 2018 to keep finances under control until 2061.
This comes on top of George Osborne's £123 billion, seven-year fiscal consolidation programme, which includes hundreds of thousands of public sector job losses, an overhaul of the welfare system and a higher pension age.
The ageing population is the key driver behind the pressure on public finances, as spending on health care and pensions increases, while dwindling tax revenues from sources such as North Sea oil interests could also have an impact.
The OBR report said: "In the absence of offsetting tax increases or spending cuts this would widen budget deficits over time and eventually put public sector net debt on an unsustainable upward trajectory.
"It is likely that such a path would lead to lower long-term economic growth and higher interest rates, exacerbating the fiscal problem. The UK, it should be said, is far from unique in facing such pressures."
The OBR said the budget balance, the difference between revenues and spending, is currently projected to move from a surplus of 1.7% of GDP in 2016-17 to a deficit of 2.6% of GDP in 2061-62.
To maintain the surplus of 1.7%, a further £65 billion in spending cuts and/or tax hikes is needed.
To avoid slipping into a budget deficit by 2061-62, or in other words to break even, the Government would need a further £39 billion in austerity measures.
In other measures, the OBR said the Government would need to impose a permanent tax increase or spending cut of £17 billion in the financial year 2017-18 to get debt back to pre-financial crisis levels of 40% of GDP.
The OBR said the main pressures on public finances come from age-related spending.
Health spending is projected to rise from 6.8% of GDP in 2016-17 to 9.1% of GDP in 2061-62, rising smoothly as the population ages.
State pension costs are projected to increase from 5.6% of GDP to 8.3% of GDP as the population structure ages and state second pension entitlements mature.
Meanwhile, social care costs are projected to rise from 1.1% of GDP in 2016-17 to 2% of GDP in 2061-62.
The OBR said these increases are partially offset by a fall in gross public sector pension payments from 2.2% of GDP in 2016/2017 to 1.3% of GDP in 2061/62.
This reflects the smaller size of the public sector going ahead, as well as the change in the way pension contribution increases are calculated.