NHS Funding Boost Adds Pressure on U.K. Finances, OBR Says

(Bloomberg) -- Britain will need to increase taxes or cut spending further if it wants to alleviate growing pressure on the public finances in the long term, the Office for Budget Responsibility said Tuesday.

An ageing population and the pressure for increased health spending will widen the budget deficit over time and put public-sector net debt on “an unsustainable upward trajectory,” the fiscal watchdog said in its 2018 Fiscal Sustainability Report.

Prime Minister Theresa May announced last month that the National Health Service will get a funding boost over the next five years equating to more than 20 billion pounds ($26.5 billion) a year more in real terms by the fiscal year 2023-24. That’s an annual average growth rate of 3.4 percent.

“The long-term outlook for the public finances is less favorable than at the time of our last FSR in January 2017,” the OBR said. “This is more than explained by the June health spending announcement.”

If higher health spending were to be fully financed by tax rises or cuts in other spending, the outlook would be little changed from that seen 18 months ago, it said.

Chancellor of the Exchequer Philip Hammond has yet to confirm how the extra NHS spending will be funded, though May has said the country will need to pay more in taxes. In its report on Managing Fiscal Risks Tuesday, the Treasury said the pressures would be partly lifted by five financial tests that the government has set the NHS, including improving its productivity and tackling rising health-care costs.

“We must continue to deliver on our commitment to fix our public finances, and we must reject the arguments of those who think that debt can rise again without consequences,” Hammond said in response to today’s report.

©2018 Bloomberg L.P.