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More Cuts 'Needed' As Bosses Demand Spending

(c) Sky News 2012

The cost of supporting Britain's ageing population means the country must find another £40bn in spending cuts or tax rises, the country's official forecaster has warned as business leaders demand more spending to boost the economy.

The independent Office for Budget Responsibility (OBR) issued the estimate while outlining its annual Fiscal Sustainability Report which described Britain's long-term fiscal outlook for the next 50 years as "clearly unsustainable."

It calculates a £39bn shortfall - down from £45bn forecast last year - will need to be found from 2017/18 onwards just to deal with people living longer.

It has previously warned that growing health, social care and state pension costs - caused by greater life expectancy - will set off on an "unsustainable upward trajectory."

Today's report also provided an update on the true state of the nation's finances , taking into account the cost of public sector pension promises, private finance initiatives, nuclear decommissioning and support for the banking sector.

It put the total cost of public sector pensions at £960bn - a fall of £175bn on last year - which the OBR said was due to the Government's decision to link pension payments to the CPI (Berlin: CEJ.BE - news) measure of inflation from the usually higher RPI.

Chancellor George Osborne is likely to seize on the report as evidence for the need to press ahead with his tough programme of austerity measures, which include hundreds of thousands of job losses, an overhaul of the welfare system and a higher pension age.

Labour has argued that the extent of the cuts is killing the prospect of economic growth through a recession 'caused in Downing Street' and Mr Osborne should change course to support jobs and therefore grow tax revenues.

The opposition's position is supported today through attacks on the Government over the lack of growth.

Frustration boiled over for the director-general of the CBI in an interview with the Financial Times.

John Cridland accused the Government of failing to secure "momentum and urgency" on plans to kickstart the recovery.

The business lobby group's head told the newspaper that ministers appeared to be "dazzled in the headlights", resulting in a lack of progress on the growth strategy set out by Mr Osborne seven months ago.

He asked: "Where are the diggers"?.

His question was seemingly answered by the bosses of the UK's biggest construction companies, who have written to the Daily Telegraph to also criticise the Government for a lack of investment.

There was also another letter to a newspaper from business and trade union leaders, complaining about indecision with Government over aviation policy.

Signatories to the letter in The Times, including Virgin boss Sir Richard Branson and TUC leader Brendan Barber, warned that Britain's international competitors risked overtaking the country in terms of business opportunities.

Ministers had been due to publish the consultation on expanding airports in south east England today but it was delayed amid reported disagreements in the coalition.