Brown must raise taxes or cut public spending to pay for ageing population, warns IMF

The highly respected Washington-based body estimated there will be an 80 per cent rise in the old-age population over the next 43 years.

That dramatic increase will put an intolerable strain on National Health Service finances as pensioners' demand for care booms, the IMF claimed.

Additional pressures will come from higher spending on state pensions and a reduction in the ranks of younger taxpayers able to support the retired.

As a result, the Chancellor must slash spending or hike taxes by tens of billions of pounds over the coming five years to put the public finances on a more sustainable footing, the IMF said.

If action isn't taken urgently, we will see an "explosive" increase in the national debt as health spending balloons beyond its current £90 billion budget, the global forecaster said.

The result would be a damaging rise in interest payments on UK government debt, which already stands at £484 billion.

The stark analysis will add to fears of a fiscal crisis in the NHS, as trusts plunge into deficits following years of lavish salary increases and a massive hospital building programme.

It will also cast a shadow over Mr Brown's forthcoming Comprehensive Spending Review, in which he will map out public spending plans for the remainder of the decade.

The NHS recorded a deficit of £536 million last year, but the Tories say the real figure is far worse.

In its bi-annual World Economic Outlook, the IMF said Mr Brown and his counterparts at other G7 nations such as the US and Japan to take urgent action to prepare for the demographic crisis presented by population ageing.

If they don't act now, future governments will ultimately have to push through even more draconian cutbacks and tax hikes down the line, the IMF predicted. It said: "Rising longevity, falling fertility rates, and the retirement of the baby boom generation will substantially raise age-related government spending in G7 countries."

"Without any fiscal adjustment, the expected increases in age-related spending imply explosive debt dynamics in all seven countries."

The IMF calculated the future gap in the UK public finances caused by factors including rising healthcare costs to be 4.8 per cent of gross domestic product (GDP), which in today's money amounts to £58 billion.

The warnings marred an otherwise optimistic outlook for the British economy.

The watchdog predicted UK GDP will expand by 2.9 per cent this year - faster than any other member of the Group of Seven advanced nations.

But that stand-out performance comes partly thanks to soaring house prices, the IMF said.

It will only heighten the chances of further interest-rate hikes.

A rise in the Bank's benchmark rate beyond 5.25 per cent would put further pressure on families' finances, which are already being squeezed by the highest tax burden in two decades.

The IMF said: "In the United Kingdom, buoyant demand and the ongoing pass-through of higher global energy prices to domestic utilities prices has pushed inflation to its highest level in five years.

"The combination of higher-than-targeted inflation and diminishing economic slack has prompted rate increases by the Bank of England, and inflation is expected to come down to the target by year-end.

"However, some further tightening may still be needed, particularly if wage pressures emerge."

The Bank of England has hiked rates three times since August to 5.25 per cent, and another rise is expected as soon as next month.