Britain will need millions more immigrants to cope with an ageing population, the official economic watchdog warned today.
The Office for Budget Responsibility said that opening the doors to an extra 140,000 every year for five decades would boost employment and bolster the public finances.
It also warned that pressure on the UK’s healthcare system caring for older people means an extra £19 billion of spending cuts or tax hikes will be needed.
Open door policy: Without high levels of migration to Britain, public debt will balloon to become larger than the entire economy, the Office for Budget Responsibility said
Urgent action is needed or the gains made by George Osborne’s spending cuts will be wiped out by increased spending on the elderly, the OBR said.
Health, pension and social care costs are already equivalent to 14 per cent of Britain’s economy but by 2062-63 it will rise to almost 20 per cent.
The OBR argues that allowing 140,000 immigrants of working age into Britain each year – totalling 7million over 50 years – would fill jobs and raise taxes for Treasury coffers.
‘Our sensitivity analysis shows that overall migration has a positive impact on the sustainability of the public finances over our 50 year horizon,’ the OBR said.
It said that if there is a steady flow of immigrants into Britain, government borrowing would rise to 99 per cent of GDP.
But if there is a bar on immigration, borrowing would hit 174 per cent.
‘These results are driven by the assumed age structure of net migration, which tends to be more concentrated in the working age group and hence reduces the dependency ratio throughout the projection period.’
Warning: Gains made by George Osborne's spending cuts could be wiped out by increased pressure on the public finances from Britain's ageing population
However, David Cameron has pledged to reduce net migration to the ‘tens of thousands’ and last year the number of immigrants fell by 89,000 to 153,00.
Without action to address the burden of an ageing population, the UK will be left with a £65 billion hole in its finances, according to the OBR.
In its annual fiscal sustainability report, it said: ‘It is clear that longer-term spending pressures, if unaddressed, would put the public finances on an unsustainable path.’
‘Public sector net debt would approach 100 per cent of gross domestic product (GDP) and still be rising,’ it added.
The OBR said the move to a single-tier state pension had slightly eased the pressure on public sector debt, but added that spending on healthcare was the biggest spending pressure over the next 50 years.
The OBR said the cost of the state pension was predicted to rise from 5.8 per cent of GDP to 8.4 per cent of GDP as the population ages, even with the introduction of the new flat rate payment system and increase in retirement age to 67 taken into account.
Healthcare spending is expected to increase from 7 per cent of GDP to 8.8 per cent of GDP, while long-term social care costs are set to rise from 1.3 per cent of GDP to 2.4 per cent of GDP.
The OBR also warned that declining North Sea oil reserves will take its toll, with oil and gas revenues expected to plunge from 0.4 per cent of GDP now to almost negligible levels - at 0.03 per cent of GDP by 2040.
But action taken so far by the Government, including an extra year of spending cuts to 2017-18 and the single tier state pension, is helping to offset some of the pressures, the report added.
The Office for Budget Responsibility's Robert Chote warned of 'huge uncertainties around the scale of the challenge' of dealing with the costs of more elderly people
Robert Chote, chairman of the OBR, said on presenting the report: ‘Since last year, the underlying deficit and debt path look less favourable.
‘But this and the costs of long-term care reform are likely to be offset by the Government's announcement of additional spending cuts in 2017-18 and savings from the single tier pension.
‘That said, there are huge uncertainties around the scale of the challenge and the UK is certainly not alone in confronting it.’
He added that the extra £19 billion needed to get borrowing back on track could be spread over the next 50 years rather than action taken in one go.
In a written statement, Chief Secretary to the Treasury Danny Alexander said the OBR's report shows that without the steps taken over the past year, public borrowing would be around 50 per cent of GDP higher in 50 years' time.
He added that the report identifies the extra spending cuts as ‘one of the key factors in containing the growth of spending over the long-term, demonstrating the importance of the Government's programme of fiscal consolidation for the long-term health of the public finances’.
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