Box sets » Fiscal risks and sustainability

Fiscal risks and sustainability - July 2023

Chart 2A: 15-64-year-old inactivity rates across G7 economies
Inactivity fell across the G7 countries in the years prior to the onset of the pandemic and the UK consistently had one of the lowest inactivity rates. Since then inactivity has risen in the UK and US, but fallen across the rest of the G7 countries. This box detailed these changes and looked at ill-health as a driver of inactivity across the G7.

Economy categories:
Labour market    Employment and unemployment    participation    inactivity   

Chart 2D: Incidence of selected health outcomes across G7 economies
The improvements seen in life expectancy and a variety of other health indicators in the UK over a period of several decades have slowed down and - in some cases - partially reversed. This box detailed these changes and compares them to trends in other G7 countries.

Cross-cutting categories:
Demographics   

Chart 2E: Working-age, out-of-work benefit caseloads over time
Benefits for working-age claimants with health problems have changed significantly over the last thirty years through the introduction of new benefits and assessments. This box described how the UK welfare system operates for working age claimants with and without health problems, and how this has changed over time.
Chart 2F: Spending on non-pensioner cash benefits across OECD countries, 2019
The UK spent close to the OECD average on non-pensioner cash benefits in 2019. This box compared the provision and generosity of health-related welfare across countries, drawing on several international studies.
The referral to elective treatment waiting list in England has risen steadily since the onset of the pandemic, to 7.4 million treatments in April 2023. This box used waiting list and LFS data to estimate the effect on employment and inactivity of halving the waiting list by 2027-28.

Economy categories:
participation    inactivity    Employment and unemployment    Labour market   

Chart 3A: Energy consumption and gas supply
Since 1970 the UK's energy sector has undergone significant shifts following the discovery of oil and gas in the North Sea and the energy shocks of the 1970s. In this box we summarised the historical events and changes that has led to the UK has become increasingly dependent on imported gas.

Economy categories:
Gas prices    Imports and exports    Oil prices   

Cross-cutting categories:
Energy   

Chart 3B: Illustrative enhanced levelised costs of energy
An estimate of the full cost of different energy sources to the power system needs to reflect more than just the construction and operating costs of energy generators that are captured in the levelised cost of electricity (LCOE). In this box we explored enhanced measures of levelised costs of energy.

Cross-cutting categories:
Net zero    Energy   

Chart 3D: Emissions in the CCC's balanced net zero pathway
Since our 2021 Fiscal risks report - which showed that reaching net zero carbon emissions will have significant impacts on the public finances in the UK - estimates of the fiscal impacts of reducing emissions in other countries have begun to be produced. In this box we recapped our 2021 work and discussed how IMF and French analysis compared to it.

Fiscal categories:
Public spending   

Cross-cutting categories:
Net zero    Climate change   

Chart 4A: Forecast of cumulative flows to and from the APF
Up to July 2022 the Bank of England's quantitative easing (QE) activities had made large profits resulting in large transfers to the Treasury but since then flows have reversed. This box described what the whole lifetime direct costs of QE would be based on our March EFO assumptions.

Fiscal categories:
Public sector net debt    Asset Purchase Facility    Debt interest spending   

Cross-cutting categories:
Monetary policy   

Table 4A: Changes in private foreign holdings of government debt and 10-year government bond yields
As the stock of foreign holdings of UK debt has risen this century, so have questions about the risks of increasing, relatively high, levels of these holdings. This box looked at the why holdings of debt by foreign investors may lead to greater market volatility.

Fiscal categories:
Public sector net debt   

Chart 5A: Financial market-implied and actual Bank Rate path
There has been a notable shift in the environment of interest rates over the past 18 months in the UK. This box looked at the extent of surprise for rate rises relative to market implied expectations and the increase in capital adequacy ratios of UK banks since the global financial crisis.

Economy categories:
Interest rates   

Cross-cutting categories:
Financial sector   

Fiscal risks and sustainability - July 2022

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   

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   

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   

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   

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   

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.
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:
Inflation    Household consumption    Oil prices   

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:
International comparisons    Ageing population    Demographics