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Public finances and health care                           Robert Chote                              Chairman              ...
Our approach in the report• 50-year projections  – Spending, revenues and financial transactions  – Budget deficits and pu...
Assumptions: demography                                                       Figures denote                              ...
Assumptions: economy and policy• Economy   – Productivity grows 2.2% a year, in line with history   – CPI inflation at 2%,...
Revenues and public spending by age                                              30£ th ousa n d s (esti m a tes for 2016-...
Results: non-interest spending                                                      Per cent of GDP                       ...
Results: non-interest revenues                                                Per cent of GDP                          Est...
Revenue and spending projections                  45                                                FSR projection        ...
Public sector net debt                   250                                                       FSR projection         ...
Public sector net debt                   250                                                  FSR projection              ...
Health care spending I• Central assumption is for per capita health spending  to rise with GDP, adjusted for population ch...
Health care productivity                                            138100= p rod ucti vi ty l evel i n 1974- 75          ...
Health care spending II• Productivity growth in health care c.0.8% pa since 79• If it stays that way, health spending woul...
Health spending in OECD since 1970  United Sta tes          Fr a nce           Sp a in         Austr ia       Ger m a ny  ...
Public sector net debt                   250                                                  FSR projection              ...
Achieving sustainability• Different definitions• PSND of 40% of GDP in 2061-62   – Permanent tightening of 1.1% of GDP fro...
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Robert Chote: Public finances and health care

Robert Chote, Chairman of the Office for Budget Responsibility (OBR), shares the results of the OBR’s 2012 Fiscal Sustainability report, with a specific focus on health care spending.

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Robert Chote: Public finances and health care

  1. 1. Public finances and health care Robert Chote Chairman 18 July 2012
  2. 2. Our approach in the report• 50-year projections – Spending, revenues and financial transactions – Budget deficits and public sector net debt – Judge sustainability and possible tightening• Four important things to remember – Broad brush projections, not precise forecasts – ‘Unchanged policy’ not always easy to define – First 5 years consistent with March EFO forecast – Focus beyond the current fiscal consolidation
  3. 3. Assumptions: demography Figures denote average annual growth rates 100 • New ONS projections this year 2.7% – More inward migration – Life expectancy lower for elderly 80 0.9% and higher for future newbornsPer cent of UK p op ula tion 0.2% – Leads to bigger population 60 • Ageing population – past rises in life expectancy and falls in fertility 40 0.1% plus baby boom ‘bulge’ 20 • Our central projection assumes: – 65+ proportion rises from 17% 0.2% in 2011 to 26% in 2061 0 – Net inward migration averages 2012 2062 roughly half recent levels 0- 15 16- 54 55- 64 65- 84 85+
  4. 4. Assumptions: economy and policy• Economy – Productivity grows 2.2% a year, in line with history – CPI inflation at 2%, consistent with Bank target – GDP deflator rises 2.5% a year• Tax and welfare – Income tax / NICs allowances rise by earnings – Most working age benefits rise by earnings – Basic state pension subject to ‘triple guarantee’• Public services spending rises with per capita GDP, adjusted for age composition of the population
  5. 5. Revenues and public spending by age 30£ th ousa n d s (esti m a tes for 2016- 17) 25 20 15 10 5 0 0 10 20 30 40 50 60 70 80 90 100 Ag e Reven ue Ed uca tion Hea lth Lon g - ter m ca r e Tota l p ub lic ser vices
  6. 6. Results: non-interest spending Per cent of GDP Estimate FSR Projection 2011-12 2016-17 2021-22 2031-32 2041-42 2051-52 2060-61 2061-62Health 8.1 6.8 7.1 7.7 8.3 8.7 9.0 9.1Long-term care 1.3 1.1 1.2 1.5 1.7 1.9 2.0 2.0Education 5.7 4.5 4.6 4.6 4.4 4.4 4.5 4.5State pensions 5.7 5.6 5.3 6.1 7.0 7.3 8.2 8.3Pensioner benefits 1.2 1.1 1.1 1.2 1.3 1.2 1.2 1.2Public service pensions 2.1 2.2 2.0 1.7 1.5 1.3 1.3 1.3Tota l a g e- rel a ted 24.1 21.3 21.3 22.8 24.2 24.9 26.2 26.3sp en d i n gOther social benefits 6.3 5.1 5.3 5.2 5.1 5.2 5.2 5.2Other spending 12.2 9.2 9.2 9.2 9.2 9.3 9.3 9.3Pri m a ry sp en d i n g 42.6 35.6 35.8 37.2 38.5 39.4 40.7 40.8
  7. 7. Results: non-interest revenues Per cent of GDP Estimate FSR Projection 2011-12 2016-17 2021-22 2031-32 2041-42 2051-52 2060-61 2061-62Income tax 10.0 10.6 10.6 10.6 10.7 10.7 10.8 10.9NICs 6.7 6.9 6.8 6.7 6.8 6.7 6.7 6.7Corporation tax 2.9 2.5 2.5 2.5 2.5 2.5 2.5 2.5VAT 6.4 6.3 6.3 6.4 6.4 6.4 6.5 6.5Capital taxes 1.1 1.3 1.4 1.4 1.5 1.5 1.5 1.5Other taxes 10.2 9.8 9.8 9.9 10.0 10.0 10.1 10.1Pr im a r y r evenue 37.3 37.3 37.5 37.5 37.9 37.9 38.1 38.2
  8. 8. Revenue and spending projections 45 FSR projection 43Per cent of GDP 41 39 37 35 2010- 11 2020- 21 2030- 31 2040- 41 2050- 51 2060- 61 N on - in ter est sp en d in g N on - in ter est r even ue
  9. 9. Public sector net debt 250 FSR projection 200Per cen t of GDP 150 100 50 0 - 50 2010- 11 2020- 21 2030- 31 2040- 41 2050- 51 2060- 61 Con sta n t p r im a r y b a la n ce
  10. 10. Public sector net debt 250 FSR projection 200Per cen t of GDP 150 100 50 0 - 50 2010- 11 2020- 21 2030- 31 2040- 41 2050- 51 2060- 61 Cen tr a l Con sta n t p r im a r y b a la n ce
  11. 11. Health care spending I• Central assumption is for per capita health spending to rise with GDP, adjusted for population changes• But – leaving demographics aside – output of health care will only rise in line with the output of the rest of the economy if productivity growth is the same (we assume 2.2% a year)
  12. 12. Health care productivity 138100= p rod ucti vi ty l evel i n 1974- 75 134 130 126 122 118 114 110 Avera g e g rowth : 0.8% p er yea r 106 102 98 1979 1983 1987 1991 1995 1999 2003 2007 Cost- Weig h ted Activity In d ex (Oliver , 2005) ON S
  13. 13. Health care spending II• Productivity growth in health care c.0.8% pa since 79• If it stays that way, health spending would need to rise 3.6% a year in real terms for output to keep up• Adds 7.5% of GDP to health spending by 2061-62, relative to central scenario• We have seen significant rises internationally over past 40 years, with less demographic pressure
  14. 14. Health spending in OECD since 1970 United Sta tes Fr a nce Sp a in Austr ia Ger m a ny Ja p a nUnited King d om N or wa y N ew Zea la nd Icela nd Ca na d a Austr a lia Ir ela nd Finla nd Denm a r k Swed en 0 2 4 6 8 10 12 Cha ng e in hea lth sp end ing (%GDP) since 1970
  15. 15. Public sector net debt 250 FSR projection 200Per cen t of GDP 150 100 50 0 - 50 2010- 11 2020- 21 2030- 31 2040- 41 2050- 51 2060- 61 Cen tr a l Con sta n t p r im a r y b a la n ce An n ua l h ea lth ca r e p r od uctivity g r owth of 0.8%
  16. 16. Achieving sustainability• Different definitions• PSND of 40% of GDP in 2061-62 – Permanent tightening of 1.1% of GDP from 2017- 18 or 0.4% of GDP each decade in central scenario – Permanent tightening of 4.4% of GDP from 2017- 18 or 1.4% of GDP each decade if per capita health spending rises 3.6% a year in real terms

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