WIREDGOV

The NIESR has published research, prepared with support from the Office of National Statistics, on generational accounts for the United Kingdom.

The purpose of the commission was to aid public understanding of current issues on fiscal sustainability.

Generational accounts show the expected net contribution - positive or negative - that people are expected to make to the Exchequer, taking a realistic view of the implications of current policies.

Over time, government must balance its books. So if those alive now are expected to make a negative net contribution - as is the case for the United Kingdom then those to be born must make a positive one. So eventually taxes will have to rise, or spending fall.

The discussion paper, "Generational Accounts in the United Kingdom", by David McCarthy, James Sefton, and Martin Weale, shows that on plausible assumptions about future spending pressures, taxes and spending will need to adjust by about 6-6.5% of GDP over time, relative to the projections, to bring the generational accounts into balance.

This is mostly driven by the upward pressure on spending, especially pensions and health, resulting from demographic pressures.

It is not driven primarily by the rise in the national debt resulting from the recent recession, which has had a relatively modest impact on fiscal sustainability for the long term - if there was no national debt at all the required rise would still be 5.5-6% of GDP.

It is important to note two points.

First, these adjustments are required over the (very) long term and hence have little or no implication for fiscal policy in the short term; the paper takes the short-term profile of tax and spending as given (by the June 2010 Budget) until 2015, and projects out from there.

Secondly, the paper does not take account of policy changes since then. Implementation of proposals such as those resulting from the Hutton Review of public sector pensions, for example, could materially impact the results.

The reports authors are David McCarthy, James Sefton and Martin Weale.

For further information contact Martin Weale at m.weale@niesr.ac.uk or Jonathan Portes at j.portes@niesr.ac.uk.