Fiscal risks and sustainability – July 2022

Our two biennial reports on the long-term sustainability of the public finances (Fiscal sustainability report) and fiscal risks facing the UK (Fiscal risks report) has been combined into a single annual report for the first time. Read the overview.

The 2022 Fiscal risks and sustainability report focuses on three potential pressures on the public finances:

  • heightened geopolitical tensions. We look back at how geopolitical conflict has affected the public finances in the past and explore the economic and fiscal implications of the potential threats we face today.
  • higher energy prices. We assess the fiscal risks from higher medium-term fossil fuel prices and potential fiscal implications of long-term changes in energy supply and demand, taking account of the UK’s decarbonisation objectives.
  • demographic change. Our first fully updated assessment of long-term fiscal sustainability since before the pandemic in 2018. Taking account of the medium-term economic and fiscal developments reflected in our March 2022 forecast and the latest ONS population, it includes projections of the path of government borrowing and debt over the next 50 years.
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Fiscal risks and sustainability – July 2022

July 7, 2022 – 1.83 MB

Supporting documents

Presentations

Boxes

Within each of our key publications we include topical ‘boxes’. These self-contained analyses are unique to this publication and tend to cover recent developments in the economy or public finances that complement the main discussion of our analyses.

Pandemic risk scenario: the emergence of a vaccine-escaping variant

Chart 1.A: Real GDP and government borrowing in the Covid downside scenario
The possibility of a new vaccine-escaping Coronavirus variant cannot be ruled out. In this box we explored the possibility of such an escape and investigated the potential economic and fiscal consequences.

Economy categories: Real GDP

Fiscal categories: Public sector net borrowing

Cross-cutting categories: Coronavirus

National Risk Register

Table 1.A: The National Risk Register’s risk assessment matrix
The National Risk Register (NRR) provides the Government's assessment of the likelihood and potential impacts of a range of risks to the safety and security of the UK. In this box box we compared the topics covered by the NRR and those we have focussed on in our risk analysis.

Cross-cutting categories: Fiscal risk management

Cyber-attacks during the Russian invasion of Ukraine

Chart 2.A: Cyber-attacks on Ukraine by Russia since the invasion began, by sector
The Russian invasion of Ukraine in February 2022 led to questions over the impact that cyber attacks were likely to have during the conflict. This box looked at the history of cyber-related activity in the region, and the evidence available for cyber impacts of the conflict to date.

Cross-cutting categories: Fiscal risk management

Government-guaranteed insurance against systemic risk (Pool Re)

Chart 2.B: Pool Re hierarchy of obligations
Given signs of pressure in the cyber insurance market, this box considered previous precedent of government intervention to help private insurers provide cover for large and uncertain risks. This included a detailed look at Pool Re, one of the longest running government-guaranteed reinsurance schemes, for terrorism risk.

Cross-cutting categories: Fiscal risk management

The changing impact of fossil fuel shocks on the UK economy

Chart 3.A: The economic impact of the 1970s oil shocks compared to today
The recent surge in energy prices and its associated effects on inflation has led to comparisons with the last major global energy crisis in the 1970s. This box examined the ways in which the shocks are similar and how they are different, with a focus on how the UK economy in some ways has become more resistent to energy price shocks.

Economy categories: Labour market, GDP by expenditure, Inflation, Real GDP

Energy prices and potential output: a production function approach

Persistently higher energy prices can reduce the supply capacity of the economy. In this box, we use a production function to estimate the impact of higher fossil fuel prices on potential output.

Economy categories: Potential output, Oil prices, Potential output and the output gap

May 2022 cost of living support package

In May 2022, the Government announced a package of measures to support households with the cost of living. In this box, we explained how we had adjusted our March 2022 Economic and fiscal outlook forecast for these policies.

Economy categories: Household consumption, Oil prices, Inflation

International demographic trends

Chart 4.A: Projected old-age dependency ratios in advanced economies
The populations of most advanced economies are ageing, placing new demands on these countries' public finances. This box explored why the UK population is forecast to age slower than most advanced economies over the next fifty years.

Economy categories: Labour market, Population and migration

Cross-cutting categories: Ageing population, Demographics, International comparisons