Following the cancellation of our 2016 Fiscal sustainability report we have published three Fiscal sustainability analytical papers today. They cover: the public sector balance sheet; the longer-term effects of student loan policy announcements over the past year; and how changes in mortality rate assumptions in the latest population projections would affect state pensions spending.
These analyses do not contain any judgements about short- or medium-term implications of the referendum result, which we will consider as we prepare our next forecast in the autumn.
In summary:
Public sector balance sheet
This paper assesses the National Accounts and 2014-15 Whole of Government Accounts measures of the UK’s public sector balance sheet. In the National Accounts, the reclassification of Housing Associations into the public sector has pushed public sector net debt (PSND) noticeably higher as a share of GDP. In the WGA, a lower discount rate has pushed up the measured net public service pension liability and the value of student loans assets, while helping to reduce the ‘RAB charge’. But this does not signal a meaningful change in long-term fiscal sustainability. The lower discount rate is also pushing up the provision for nuclear decommissioning, although here there is also a genuine further increase in expected costs.
Student loans
This paper updates the long-term projections for the addition to public sector net debt from student loans published in our 2015 FSR. It shows that student loans are now expected to add 10.4 per cent of GDP to net debt in 50 years’ time, up 2.8 per cent of GDP since last year. The increase largely reflects a series of policy changes announced by the Government in recent fiscal events, including the conversion of maintenance grants to loans for students from lower-income households and replacing bursaries with loans for nurses and others studying certain health-related courses.
Population projections and pensions spending
This paper describes the latest ONS population projections and their implications for the State Pension age (SPA) and pensions spending. Counter-intuitively, the fall in life expectancy in the latest projections increases spending over the 50-year projection horizon, because our estimate of the impact of the Government’s decision to link the State Pension Age to life expectancy increases spending (by slowing the pace of SPA rises) by more than the increase in mortality directly reduces it. But over the very long term the slower pace of SPA increases only offsets a third of the direct effect.