UK must tax rich harder to sustain ageing population: fiscal panel
15 Jul 2011
Faced with an ageing population, the UK must be prepared to tighten its belt for years to come in order to meet health and social welfare costs, says the Office for Budget Responsibility (OBR).
The OBR was set up to produce independent projections of public finances, as part of the current government's pledge of moving towards greater transparency in economic data.
In its first fiscal sustainability report released this week, it said that the rising cost of healthcare and pensions (as 'baby boomers' retire), and declining tax revenues from North Sea oil, will mean future governments have to take action to prevent debt levels rising beyond management.
The budget watchdog said increasing longevity will eventually put the country's debt burden on an unsustainable path without higher taxes or further cuts to public spending.
This implies that the rich must share a far greater share of income tax, which account is expected to account for about 27 per cent of the government's total receipt for the fiscal year ending next March.
The OBR has projected public sector borrowing of £149 billion for the financial year.
Under the UK tax system, the rich pay a far greater share of income tax, which is expected to raise £158 billion this year. The OBR estimates that for every one percentage point increase in the tax share of the top 5 per cent of earners, the state receives an extra £2.4 billion.
