1.53 The Government is taking further measures to ensure sustainable public finances and meet its fiscal targets. The Government will:
• set plans for public spending in 2015-16 and 2016-17 in line with the spending reductions over the Spending Review 2010 period. Total Managed Expenditure will fall by 0.9 per cent a year in real terms, the same rate as in the Spending Review 2010 period, with a baseline excluding the one-off investments in infrastructure announced in the Autumn Statement. Public Sector Gross Investment, excluding these one-off investments, will continue to grow with general inflation in the economy in 2015-16 and 2016-17;
• raise the State Pension age to 67 between April 2026 and April 2028, which is expected to save around £60 billion in today's prices between 2026-27 and 2035-36. While increasing life expectancy is to be welcomed, the OBR's Fiscal sustainability report forecasts that spending on state pensions will rise from 5.5 per cent of GDP in 2015-16 to 7.9 per cent of GDP in 2060-61.18 The Government has taken action to address the fiscal challenges this creates and legislated to bring forward the increase in the State Pension age to 66 by October 2020. Since the life expectancy projections underpinning the original State Pension age timetable were published, average life expectancy at State Pension age in 2028 has increased by at least one and a half years for men and women. Given the ongoing increases in life expectancy beyond 2026, the Government will raise the State Pension age to 67 between April 2026 and April 2028. Future increases in the State Pension age will also be based on demographic evidence and the Government will discuss further the process that could be put in place to allow the views of interested parties to be considered when these decisions are made;
• set public sector pay awards at an average of one per cent for each of the two years after the current pay freeze comes to an end. Departmental budgets will be adjusted in line with this policy, with the exception of the health and schools budgets, where the money saved will be recycled. This will protect expenditure on public services;
• not go ahead with the planned £110 above inflation increase to the child element of the Child Tax Credit and not uprate the couple and lone parent elements of the Working Tax Credit in 2012-13. The child element of the Child Tax Credit and disability elements of tax credits will be uprated in line with CPI in 2012-13; and
• adjust the allocation of Official Development Assistance in line with the OBR's revised growth forecast, so that the UK spends 0.56 per cent of Gross National Income on Official Development Assistance in 2012 and 0.7 per cent in 2013 and thereafter.
1.54 These measures will reduce spending permanently in the medium and long term and so make the fiscal position more sustainable. In the short term, the Government is using the savings in current spending generated from the decisions taken on public sector pay, tax credits and Official Development Assistance to fund a package of measures that will support balanced economic growth, social mobility and help young people find work while ensuring that young children from disadvantaged backgrounds receive sufficient support.
1.55 The Autumn Statement announces £6.3 billion of additional infrastructure spending over the Spending Review 2010 period, of which £1.3 billion was announced earlier in the autumn; commitments to £5 billion of capital projects in the next spending review period as part of the National Infrastructure Plan; and around £1 billion of new private sector investment in regulated industries supported by government guarantee. These one-off investments in transport, broadband, science, regional growth and education will boost economic growth, unlock private investment and help businesses grow and compete effectively in the global economy. The Government is also working with UK pension funds to unlock additional investment in UK infrastructure, targeting up to £20 billion of new investment. In total, the Autumn Statement supports around £30 billion of additional capital investment.
1.56 The impacts of each of these measures on the public finances are set out in Table 2.1 in Chapter 2. The Government will ensure that future reforms are also governed by the need to ensure the long-term sustainability of the public finances.
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18 Fiscal sustainability report, OBR, July 2011. Available on the OBR website at www.budgetresponsibility.independent.gov.uk.