Scale of health and pension obligations has not been made clear to taxpayers, says free-market Institute of Economic Affairs
UK taxpayers were being kept in the dark about the large scale of spending cuts or tax rises needed to fund future pension and social obligations for an ageing population, the Institute of Economic Affairs said.
The country faced a stark choice between total spending cuts of more than a quarter, health and social protection spending cuts of 50%, or "significant" tax hikes if long-term obligations were to be met, the free-market champions said.
In its report, the Government Debt Iceberg, the IEA said the measure of indebtedness among western governments including the UK should include the extent to which all future spending plans could not be financed by the current tax system.
Taking into account commitments that have been made under social security and healthcare programmes, the UK fiscal imbalance – or the gap between tax and spending – was 13.6% of the estimated present value of UK GDP, the IEA said.
On that basis, the UK had the choice of raising the equivalent of 13.6% of GDP with extra tax revenues, over and above existing taxes, which would be levied each year to ensure that government spending commitments could be met from taxation.
Or it has the choice of cutting spending by more than a quarter – or halving spending on health and benefits.
The IEA said the government's planned measures – including a proposed rise in the state pension age to 68 by 2046 – were not enough to deal with the scale of the challenge.
Professor Philip Booth, editorial and programme director at the IEA, said: "Without reform, today's young people are likely to be disappointed, either in terms of higher tax rates or in terms of reduced future benefits provided by government. The quicker the government changes policy, the more painlessly the situation will be resolved. For too long people have voted themselves benefits to be paid for by the next generation of taxpayers, not by sacrifices that they will make themselves."
The IEA argues in the report that Europe and the US "will soon begin to encounter fiscal constraints the like of which we have never seen before" because governments have developed unfunded social insurance programmes where retiree benefits are paid for from the taxes of the working-age population.
"Politicians have known about population ageing for around 50 years but ignored the problems it will create for public finances," the report said. Reported by guardian.co.uk 10 minutes ago.
UK taxpayers were being kept in the dark about the large scale of spending cuts or tax rises needed to fund future pension and social obligations for an ageing population, the Institute of Economic Affairs said.
The country faced a stark choice between total spending cuts of more than a quarter, health and social protection spending cuts of 50%, or "significant" tax hikes if long-term obligations were to be met, the free-market champions said.
In its report, the Government Debt Iceberg, the IEA said the measure of indebtedness among western governments including the UK should include the extent to which all future spending plans could not be financed by the current tax system.
Taking into account commitments that have been made under social security and healthcare programmes, the UK fiscal imbalance – or the gap between tax and spending – was 13.6% of the estimated present value of UK GDP, the IEA said.
On that basis, the UK had the choice of raising the equivalent of 13.6% of GDP with extra tax revenues, over and above existing taxes, which would be levied each year to ensure that government spending commitments could be met from taxation.
Or it has the choice of cutting spending by more than a quarter – or halving spending on health and benefits.
The IEA said the government's planned measures – including a proposed rise in the state pension age to 68 by 2046 – were not enough to deal with the scale of the challenge.
Professor Philip Booth, editorial and programme director at the IEA, said: "Without reform, today's young people are likely to be disappointed, either in terms of higher tax rates or in terms of reduced future benefits provided by government. The quicker the government changes policy, the more painlessly the situation will be resolved. For too long people have voted themselves benefits to be paid for by the next generation of taxpayers, not by sacrifices that they will make themselves."
The IEA argues in the report that Europe and the US "will soon begin to encounter fiscal constraints the like of which we have never seen before" because governments have developed unfunded social insurance programmes where retiree benefits are paid for from the taxes of the working-age population.
"Politicians have known about population ageing for around 50 years but ignored the problems it will create for public finances," the report said. Reported by guardian.co.uk 10 minutes ago.