UK faces 'crippling' tax rises and spending cuts to fund pensions and healthcare

http://www.telegraph.co.uk/finance/economics/10693317/UK-faces-crippling-tax-rises-and-spending-cuts-to-fund-pensions-and-healthcare.html

Britain faces “crippling” tax rises and spending cuts if it is to meet the needs of an ageing population, according to the Institute of Economic Affairs.


The IEA calculated the Government would need to slash spending by more than a quarter or impose significant tax hikes because official calculations had failed to factor in future pension and healthcare liabilities. “As populations age, tax bases will grow more slowly while government spending rises faster,” its report said.


In a stark warning, the think-tank said Britain faced tax rises within just two years equivalent to more than 17pc of GDP – more than £300bn - in order to meet all future spending commitments. This is larger than the entire annual NHS budget and would increase taxes from 38pc to 55pc of national income.


Philip Booth, the IEA’s programme director, said tax increases of this magnitude would be “impossible” to implement “without choking off economic growth and actually reducing tax revenues.


“The underlying problem is that successive governments have made promises which can simply not be honoured from the existing tax base. The electorate is grazing a fiscal commons at the expense of future generations,” he said.
In the absence of further tax hikes, Jagadeesh Gokhale, the author of the IEA's report: the Government Debt Iceberg, said total spending would have to be cut by more than one quarter or health and welfare expenditure by 53pc compared with the current implied level if all future spending was to be met out of tax revenue.

Interactive chart: Europe's hidden debt pile

While the IEA said increases to the state pension age would help to soften the blow of future tax rises, it said policies were being implemented too slowly and were “inadequate” on their own.

Mr Gokhale said policies to address pension saving and healthcare costs were needed now or the problem would quickly grow out of control.

“Without significant changes to spending levels, huge sacrifices will have to be made by future generations either through significantly higher taxes or reduced benefits,” the report said.

The IEA calculated that delaying crucial pension and healthcare reforms by just a few years would dramatically increase the burden because of growing debt interest payments. It said the ratio would increase from 13.7pc of GDP in 2010 - already higher than the EU average of 13.5pc - to almost 17.1pc by 2016 if no policy adjustments were made.

Interactive chart: How Britain could balance the books

“We have never been in a situation like this before. It is quite possible that we will not find our way through without serious social breakdown and/or mass emigration of the most mobile and productive people,” said Mr Booth.

The report also warned that governments would not be able to grow their way out of trouble, and were too often “fixated” on short term growth. It said while the Government’s decision to move assets of the Royal Mail pension fund had reduced short-term debt measures, long-term state pension liabilities had increased.

“The Government took the assets of the Royal Mail pension fund and gave the workers promises of government pensions in return,” the report said. “The explicit government debt was reduced but future government liabilities – in this case contractual – were increased.”

“Without reform, today’s young people are likely to be disappointed, either in terms of higher tax rates or in terms of reduced future benefits provided by government,” said Mr Booth. “The quicker the government changes policy, the more painlessly the situation will be resolved. For too long people have voted themselves benefits to be paid for by the next generation of taxpayers, not by sacrifices that they will make themselves.”

This is a reality that the left cannot accept. We have already mortgaged our childrens futures. We have not set enough aside for current commitments let alone future pensions. Austerity is here to stay and all Millibands bluff and bluster about spending is just that.

well if they are looking to the working mans pocket for the shortfall the well is dry...

This is linked to another article I posted. I note the left ignore this it doesn't support spend spend spend.