OBR Warns: Climate Change Could Hit the Economy Harder Than We Ever Expected

The UK’s national debt could soar to 270 per cent of GDP by 2070, according to a stark new warning from the Office for Budget Responsibility. That’s a dramatic jump from the current level of under 100 per cent. One of the most significant factors driving this outlook? Climate change.

In its latest fiscal risks and sustainability report, the OBR says the country’s public finances are in a “relatively vulnerable position.” The report outlines a mix of threats, including turbulent bond markets, rising pension costs, global political instability, and an increasing need for climate-related spending, both to adapt to environmental changes and to support the transition to a low-carbon economy.

The analysis models two possible futures. In the first scenario, global warming is kept below two degrees Celsius through coordinated action that achieves net-zero emissions worldwide by the 2070s.

“The most recent data and updated modelling suggest that the damage to UK GDP from climate change is likely to be more severe than previously thought,” the analysis states. The OBR has increased its forecasts for the potential fiscal costs of climate damage under both scenarios.

Even then, UK GDP could be about 3.3 per cent lower each year by the 2060s than it would be without climate change. In a more extreme scenario, where the world heats up by three degrees by 2100, the economic impact is far worse. The UK could see its GDP shrink by nearly 8 per cent per year by the 2070s, with a worst-case estimate of a 27 per cent drop.

The OBR isn’t just focused on climate’s direct costs, such as infrastructure repairs after extreme weather events. It also takes into account broader impacts, such as reduced productivity and disruptions to global trade, which are especially critical for a country like the UK, which imports a significant portion of its goods and services.

Globally, things aren’t looking much better. The United Nations has projected that the world is currently on track for about 3.1 degrees of warming. That figure could decrease to between 2.6 and 2.8 degrees if countries fully deliver on their Paris Agreement pledges—but that’s still above the safer thresholds.

The Intergovernmental Panel on Climate Change has warned that breaching the Paris goals of 1.5 or even 2 degrees would render vast parts of the world essentially uninhabitable, directly affecting a third of humanity.

The Energy and Climate Intelligence Unit’s Amber Sawyer said the OBR’s report is a “stark warning”. She said: “It’s a sobering reminder if one were needed of the range and breadth of climate change impacts, highlighting the enormous burden that climate-related damages will place upon the UK economy, particularly as a result of heatwaves, flooding and coastal erosion.”

Debt pressures are another primary concern. In the OBR’s view, interest costs on the national debt will rise sharply under both climate scenarios. In the lower warming case, public sector net debt could increase by 31 per cent by 2073. In the higher warming scenario, that figure jumps to 56 per cent.

When the OBR layers on other vulnerabilities, from demographics to geopolitical risks, it paints a sobering picture. If things go wrong across the board, national debt could reach a staggering 270 per cent of GDP by 2070.

The watchdog concludes that recent efforts to restore the public finances have resulted in “only limited and temporary success”.

“While getting a measure of public debt falling as a share of GDP has featured in eight out of nine UK fiscal frameworks since 2010, underlying debt has risen by 24% of GDP over the past 15 years and by 60% of GDP over the past 20,” it says.

A Treasury spokesperson said: “We recognise the longstanding economic realities the OBR sets out in its report. This is why we are committed to ensuring stability in the economy through our non-negotiable fiscal rules, which have allowed us to invest in the UK to drive a decade of renewal and put more money in people’s pockets.”

The UK Sustainable Investment and Finance Association’s CEO, James Alexander, said the OBR’s predictions on debt “reveal the chilling threat unrestricted climate change poses to the UK’s finances”.

He added: “The Government has so far laid some very encouraging foundations on the path towards a more resilient and sustainable financial system. But it must continue to rapidly advance this evolution to both protect businesses and harness the enormous power of the green economy.”