Net zero carbon target could inflate UK debt by less than a -OBR pandemic
By William Schomberg
LONDON (Reuters) – The mountain impact of UK public debt caused by measures taken to meet the net zero carbon target of 2050 will be huge but could be less severe than that of the coronavirus pandemic if global action is taken taken quickly, said a budget watchdog.
The Office for Budget Responsibility said its early action scenario added 21% of gross domestic product to public sector net debt in 2050-2051, or 469 billion pounds ($ 650 billion) in terms of today.
Although this is a huge increase in historical terms, “it’s a little less than the addition of net debt as a result of the pandemic,” the OBR said in a risk report future budgets.
This scenario assumed that the government would shoulder about a quarter of the cost of Â£ 1.4 trillion to make the UK economy net zero carbon by 2050, a net cost of Â£ 344 billion when combined with savings energy efficiency.
“But spread over three decades, this represents on average only 0.4% of GDP per year,” the report said.
In a deferred action scenario, without decisive action on climate change by 2030 before being expelled, the debt in 2050-2051 would be 23% of GDP higher than in the early action scenario.
If no action is taken, debt would climb to 289% of GDP by the end of the century, from around 100% today.
Earlier Tuesday, Richard Hughes, chairman of the OBR, said the UK’s 2,000 billion pound ($ 2,800 billion) mountain of debt is increasingly exposed to inflation and rate shocks. interest which themselves become more frequent.
Hughes said the OBR expected the current rise in inflation – which could exceed 3% according to the Bank of England – to be temporary as the economy recovers from pandemic lockdowns.
But he said the government’s outstanding debt is increasingly vulnerable to the risk of inflation and higher interest rates, with shorter average maturities and more inflation-indexed bonds.
âIn the old days, governments could inflate their debt. This is less and less the case as we move into the future, âHughes told BBC radio.
âWe are two decades into the 21st century, but governments have already faced two unique shocks – during the 2008 financial crisis and the 2020 coronavirus pandemic – and there is reason to believe this type major shocks are becoming more and more frequent and more severe.
Hughes said demands for additional spending on health, education and transportation, which have been affected by the drop in passenger numbers due to the pandemic, could cost an additional Â£ 10 billion per year, which no is not included in the spending plans of Minister of Finance Rishi Sunak.
Sunak has authorized additional spending and tax cuts worth around Â£ 350 billion since the start of the pandemic, putting Britain with its biggest peacetime budget deficit.
He promised to put public finances back on “a sustainable basis”.
($ 1 = 0.7204 pounds)
(Written by William Schomberg; edited by Michael Holden and Mark Heinrich)