The odd thing about the reaction to what the OBR said is that it really wasn’t surprising. Yet many react as though it was a bolt out of the blue.

The UK – like much of the developed world – is ageing. When the baby boomers have all retired, the UK – like much of the developing world – will have major problems funding retirement.

The problem is more acute elsewhere. It is much more acute in Japan, but it is getting worse than that in Italy, Eastern Europe – especially Russia – and indeed China.

In fact the UK’s population is likely to see its most rapid rate of increase this decade since the early 1900s.

The OBR said: "Our central projection shows spending other than on debt interest falling from 36.7 per cent of GDP at the end of our medium-term forecast in 2017-18 to 36.1 per cent of GDP in 2020-21 as the output gap closes. It then rises to 40.6 per cent of GDP by 2062-63 as demographic trends lift spending on health, pensions and long term care, an increase of 4.0 per cent of GDP or £61 billion in today’s terms from the end of our medium-term forecast."

It forecast that health spending will rise from 7.0 per cent of GDP in 2017-18 to 8.8 per cent of GDP in 2062-63. State pension costs increase from 5.8 per cent of GDP to 8.4 per cent of GDP as the population ages.
According to the OBR, the fix is for the UK to have 140,000 more immigrants each year between now and 2063.

This suggestion has not gone down well.

Baroness Sally Greengross, chief executive of the International Longevity Centre – UK (ILC-UK), said: "The costs set out today are not inevitable. Increasing the average retirement age by just one extra year could bring in around £13bn or 1% of GDP. Real political and financial investment in the prevention of ill health could save money for health and social care.”
She added: “Older people already contribute billions through volunteering and care. Creating the right incentives and support could deliver even greater contributions.”

She is not wrong. If the retirement age is put back, government coffers will be boosted.

Some say it makes no sense to have more immigrants when unemployment is so high. Setting aside that actually unemployment is not that high, not really, when you consider the rest of Europe, some say the solution for the UK is not more immigrants; it is better education so that the pool of available talent in the UK is more relevant to what industry needs.

But, here are two observations.

Mass immigration from those parts of the world where the population is rising, to those parts where it is either falling or rising very slowly is inevitable. The UK faces a much less significant need than many other countries.
But there is one thing the OBR, and indeed the UK government, keeps forgetting.

Yes, in order to help baby boomers when they retire, government debt needs to fall.

But household debt needs to fall too.

We have becomes obsessed with cutting government debt, even if we do this at the expense of increasing household debt, and it makes no sense.

Government finances may well be aided by more immigration but will total finances – that government, household and corporate – be helped? That is a more pertinent question, and one that is not being asked.

© Investment & Business News 2013