Trade-offs ‘inevitable’ as demographic pressures build up, warns IFS

12 May 17

The Institute for Fiscal Studies has warned of “inevitable trade-offs” ahead as public spending pressures mount over the next 50 years.

In a briefing note prepared ahead of the 8 June general election, the IFS highlighted the UK’s rapidly ageing population and the pressure on public spending this would exert, particularly on health and social care and state pension costs.

The IFS said there was an “unavoidable choice” between increasing the size of the state, limiting spending on health, social care and the state pension, or keeping spending growth in these areas at the expense of other public services.

“The growth and ageing of the population – along with cost pressures and technological change within health – are projected to place an increasing strain on the public finances,” said Rowena Crawford, associate director at the IFS.

“These pressures are projected to amount to over £100bn of annual spending in 50 years time.”

Crawford added that the dilemma facing the public finances was not new. “What would be new would be a serious attempt to address these issues in a coherent and systematic fashion,” she said.

While the IFS acknowledged that pressure on state pension spending was being tempered by planned rises to the state pension age, the think-tank said spending was still expected to increase by 1.8% of national income – £37bn in today’s terms – between 2016-17 and 2066-67. This pressure, however, would be halved if increases were indexed to earnings rather than “triple locked”.

Over the same time period, health spending is expected to increase by 0.8% of national income in response to demographic pressures, and new treatments and technologies are likely to add even more to costs, the IFS said.

“The next government would be wise to consider these long-run trends carefully, and to start focusing on finding and implementing a long-term solution to these funding pressures now, rather than just announcing further short term funding fixes,” the institute said.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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