The national debt will rise to ‘unsustainable’ levels despite Reeves’ new borrowing rules

The government’s debt mountain will rise to ‘unsustainable’ levels even under the chancellor’s new budget rules, official figures show.

Rachel Reeves last week threw out the old method of measuring the national debt, paving the way to saddle future generations with massive debt.

Her new rules will allow her to borrow up to an additional £50bn, while still claiming she can balance the books.

But they also mean that, on current estimates, within fifty years almost £1 in every £3 of tax revenue will go to interest payments – money that could have been spent on hospitals, schools and defence.

On Wednesday, Reeves will kick off the massive borrowing binge in her first budget, which will include “painful” tax raids on pensions, inheritances and capital gains.

The Tories described changing the debt rules as a ‘pansy’.

Reeves claims it will lay the foundation for ‘sustainable growth’, based on long-term investment in public services such as the NHS and in key sectors such as infrastructure, green energy and life sciences to drive growth.

Net debt currently stands at £2.8 trillion – roughly equal to annual economic output, or GDP – and is at its highest level since the early 1960s.

Recent figures from the independent watchdog Office for Budget Responsibility show that, even under its new benchmark, the national debt will still rise to almost three times the size of the economy over the next fifty years.

The Fiscal Risks and Sustainability report pointed to ‘an aging population’.

It highlighted “a falling birth rate” and added that the “baby boom” generation, born between 1945 and 1964, has retired or is moving in that direction.

According to the OBR, this means that there will likely be less tax coming in and that there will be a greater need for health, care and pensions spending for a growing number of older people.

It is also predicted that the cost of servicing the interest on the mounting debt pile will skyrocket, placing a huge financial burden on our children and grandchildren.

Interest payments will account for almost a third of government revenues by 2074, up from 7 percent now, the OBR said.

“These and other pressures would ultimately put public finances on an unsustainable path,” the OBR added. The forecasts are based on Reeves’ preferred measure of debt, public sector net financial liabilities, or PSNFL – also known as “sniffle.”

PSNFL is a broader measure of debt than the one currently used, meaning the loan ratio is lower even if the actual amount remains the same.

The new rule treats student loans as an asset – on the basis that some of the debt will eventually be repaid – rather than treating the entire loan portfolio as a liability.

Treasury costs have risen in recent weeks amid growing concerns about Reeves’ tax and spending plans.

Financial markets are keen to see how much of the extra £50 billion of headroom the Chancellor will use in her budget.

Reeves says she will put up “guardrails” to reassure them — and prevent taxpayer dollars from being wasted on expensive pet projects.

The OBR’s report, which was based on the previous government’s policies, will be updated next year to take into account Reeves’ budget plans.