Week 28, 2012: UK Public Sector Net Debt Forecasts

Summary: The Office for Budget Responsibility (OBR) released their Fiscal Sustainability Report yesterday, and it contained some interesting projections for the UK economy over the next fifty years.  The one forecast we chose to focus on this week follows on from our popular chart two weeks ago, showing the different possibilities for the future of UK public sector net debt.

What does the chart show? The chart shows projections for UK public sector net debt as a percentage of GDP based on five different scenarios.  The "central" scenario (the black line), is a "low migration" scenario with a long-term average annual net immigration of 140,000.  It also assumes a fertility rate of 1.84 and a life expectancy at birth in 2033 of 83.1 years for males and 86.7 years for females.  The result of all this is that the estimated population in 2060 would be 77.2m (of which 44.5m are aged 16-65).  The other four scenarios (no net immigration at all in yellow, high net immigration in green, an older population in red and a younger population in blue) all change one variable.

Why is the chart interesting? At the furthest extreme, comparing an unlikely no-migration scenario with a (possibly just as unlikely) younger population scenario results in very different figures.  In the first case, the UK is projected to be hurtling towards a public sector net debt representing 200% of GDP, while in the latter case, the UK can cut its debt to below 40% of GDP.  The more likely central case shows an initial dip, before debt levels head back up towards 90% of GDP.  Ultimately, such long-term forecasts are rarely accurate, but these predictions do show the potential effect of both age and migration on government finances, with a younger, more migrant population proving to be a better scenario.