The UK’s fiscal watchdog has said health costs are the biggest risk to the government’s spending plans.The Office for Budget Responsibility’s (OBR) says the UK faces the challenge of an ageing population and the high cost of technological advances.It also says: “Lifting current limits on public sector pay increases would pose a fiscal challenge.”But on Brexit, the OBR says a large “divorce bill” for leaving the EU would not be a big threat to UK finances.Instead it argues that trade agreements with the EU other trading partners are more important for the long-term growth of the UK economy.The OBR’s Fiscal Risks Report outlines a range of risks that the UK faces, and adds that the issues are complicated by the government having “to manage the uncertainties posed by Brexit, which could influence the likelihood or impact of other risks”.Other cost pressure include, “the uncertain costs of cleaning up nuclear power stations, compensating victims of clinical negligence and reimbursing tax that the courts determine should not have been collected. “In the near term the Government may also need to finance an extensive programme of fire safety measures in the wake of the Grenfell Tower tragedy”.Tax-takeThe OBR outlines how important economic growth is to the amount of tax the country can collect. It says that over fifty years, an annual 0.1% fall in economic output would cause Britain’s debt-to-GDP ratio to be 50 percentage points higher.The amount of money the Treasury collects in taxes each year also faces risks:Fuel and tobacco duty are falling, as engine efficiency improves and smoking declines.
The rise in self-employment and incorporation (forming a company) has reduced receipts from income tax.
Policies to tackle tax avoidance and evasion have produced “a “relatively uncertain yield”.
Tax is coming from a smaller number of taxpayers which makes the tax system more sensitive to downturns.
Under its charter, the Office for Budget Responsibility has to produce a report on fiscal risks every two years. The Treasury has to reply to the report within a year.