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Eye-watering cost of paying down government debt: Interest payments will total £120.4bn this year
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Britain will spend more than half a trillion pounds on national debt over the next few years.
In a gloomy set of forecasts underlining the predicament of public finances, the Office for Budget Responsibility (OBR) said debt interest payments will total £120.4 billion this year – or £1,800 per person in the UK.
The bill is more than double last year’s £56.4bn and more than is spent on any government department apart from health.
Last: In a gloomy set of forecasts, the Office for Budget Responsibility said debt interest payments will total £120.4 billion this year – or £1,800 per person in the UK
And at 4.8 percent of GDP, that is the highest since 1948.
With the bill set to remain high for the foreseeable future – as a borrowing boom, higher interest rates and high inflation take their toll – the OBR estimates it will cost taxpayers £585bn to service the national debt over the next six years.
Paul Johnson, director of the Institute for Fiscal Studies, said the numbers are ‘simply huge’ with interest payments on the £2.5 trillion mountain of debt ‘going through the roof’.
He added: “Borrowing is not free as we are rather painfully reminded by these numbers.
Expenditure on interest on debt will displace expenditure on public services. High interest rates, high borrowing, high inflation and huge debts from the Bank of England have cost us dearly.”
Public debt has exploded since the turn of the century – from £354 billion in 2000 to £2.5 trillion today – as the financial crisis, the Covid pandemic and the energy crisis wreaked havoc on public finances.
The cost of servicing debt has been pushed up by rising interest rates and government bond yields and by high inflation.
This is because 22 percent of the mountain of debt – or some £550 billion – is index-linked.
That means it is tied to the retail price index (RPI) inflation measure.
The debt stock linked to inflation was only 6 percent in 2000.
RPI hit 14.2 percent last month — the highest since 1980.
Duncan Simpson, chief economist at the Taxpayers’ Alliance, said: “The rising cost of servicing the national debt is very worrying.
Taxpayer money that should be spent on front-line services or keeping rates low instead goes toward interest payments that exceed the cost of government services.
“The Chancellor must address our skyrocketing debts if he is to have any hope of balancing the books.”