01 April 2005
British governments must rein in spending on pensions and health care over the next 30 years or the country's debt rating could be downgraded to 'junk' status, credit experts have warned.
A study of the impact of ageing populations on industrialised economies, published by the ratings agency Standard & Poor's on March 21, claims that British government debt could fall from investment grade to speculative (or 'junk') status by 2035 unless successive chancellors balance budgets and reduce spending.
Downgrading UK debt would mean the government has to pay more to borrow to invest in public services.
S&P claims that if the UK continues to spend at its current rate to cover the ageing population, government debt could reach 160% of gross domestic product by 2050, compared with just 42% currently. It highlights spending needed to cover 'social and health care costs', including increasing pension liabilities, as major problems.
S&P claims that other industrialised states are in an even worse position than the UK. It is possible that Japan's debt could top 700% of GDP by 2050, while borrowing across the US, France and Germany could top 200% of GDP over the period, the report claims.
A Treasury source said the study was 'purely speculative'. Moves are already afoot in the UK to ease spending on many of the costs identified by S&P.
PFapr2005
