The government has left itself “very small margins” to meet its fiscal rules, the UK’s fiscal watchdog has warned, as the country faces a “daunting” task to rein in public finances over the coming decades.

The Office for Budget Responsibility, which audits government tax and spending policies, said successive UK governments had largely failed to put the public finances “on a more stable footing” over the last 15 years, a period in which debt and deficits have risen steadily.

The UK’s budget deficit is at 5.7 per cent of GDP, the third highest among the world’s 28 advanced economies, while the debt pile is at 94 per cent of GDP, the highest since the 1960s and the sixth highest in the developed world.

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“The scale and array of risks to the UK fiscal outlook remains daunting,” the OBR said in its latest fiscal risks and sustainability report. The public finances remained in a “relatively vulnerable position” after dealing with shocks such as the pandemic, an energy crisis and a bond market panic triggered by Liz Truss.

The watchdog said Labour’s new fiscal rule — to reduce a measure of public sector debt that excludes financial liabilities — was at risk from a number of factors. The targeting of “public sector net financial liabilities” was done by the chancellor in her first budget last autumn, a move that freed up tens of billions of pounds for longer-term investment.

But the OBR said Rachel Reeves had left herself “very small margins” to hit the target, which is also coupled with a more stringent target to pay for all day-to-day government spending with tax revenues.

A spokesman for the Treasury said the government would stick to its “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 Treasury said: “We recognise the longstanding economic realities the OBR sets out in its report.”

The OBR also focused on future policy challenges that will put pressure on the public finances, such as pensions and climate change. It said that the decision to stick to the triple lock uprating of the state pension would account for more than half of the 2.7 per cent of GDP rise in spending on pensions over the next 40 years.

The triple lock, which raises the state pension every year in line with consumer price inflation, average earnings or 2.5 per cent, whichever is the highest, “has cost around three times more than initial expectations” at more than £15 billion, the watchdog said.

The jump in inflation from 2021 has been largely responsible for the triple lock costing £15.5 billion a year by the end of the decade, far higher than the £5 billion government estimate. If inflation remains sticky over the longer run, the triple lock could cost result in another £43 billion in state spending by the 2070s, the projections said. Both Labour and the Tories have committed to keeping the triple lock in place.

The climate transition also poses a bigger risk to the public finances and economic growth than the OBR last assumed. It revised up its estimate of the borrowing hit from climate change risk from 0.7 per cent of GDP to 2 per cent of GDP. The total level of UK GDP could now be hit by 8 per cent in the 2070s, up from a previous forecast of 3 per cent.

This is based on a new baseline where global temperatures rise just below 3°C. The cost of climate change can be measured through the fiscal pressures to achieve the net zero transition and the damage that rising temperatures poses for the economy more broadly.