£1,000 each: The cost of servicing Britain’s national debt as borrowing binge pushes it to £2.3trillion
The cost of servicing Britain’s ballooning national debt looks set to hit almost £1,000 per person this year as borrowing costs spiral.
A dramatic borrowing binge has pushed the debt pile up from just £354billion at the turn of the century to an astonishing £2.3trillion today.
And the cost of servicing that debt is soaring as higher borrowing costs and rising inflation add billions to interest payments.
Britain’s ballooning nation debt is a major headache for Chancellor Rishi Sunak (pictured) as he seeks to repair the country’s battered finances
Experts at audit, tax and advisory company KPMG believe that debt interest payments will total £64billion in 2021-22 – £955 for every person in the UK. That is up from £39billion last year.
It means that Britain is spending more on debt interest payments than on defence, and is a major headache for Chancellor Rishi Sunak as he seeks to repair battered finances and free cash for tax cuts ahead of the next election.
Michal Stelmach, senior economist at KPMG UK, said the impact of higher inflation and rising interest rates on the cost of servicing the national debt could add £11billion to borrowing in 2022-23.
That would ‘eat up over half of the Chancellor’s current fiscal headroom’ – the war chest with which Sunak hopes to win over voters with tax cuts.
John O’Connell, chief executive of the Taxpayers’ Alliance, said: ‘Taxpayers will be alarmed that Britain’s debts are reaching astronomical heights.
‘These numbers should serve as a massive wake-up call for the Government. Ministers need to get public spending under control and stop the debt from spiralling further.
‘If they don’t it will only continue to weigh down taxpayers for generations to come.’
The national debt has ballooned this century as Labour lost control of the public finances in the financial crisis and spending spiralled in the pandemic.
The debt burden now represents 96.1 per cent of gross domestic product – the highest level since 1963 when the impact of the Second World War was still being felt in public finances.
Record-low interest rates made the debt manageable for much of the period since the financial crisis.
But interest payments rose 54 per cent in the first eight months of the fiscal year, from £27.8billion to £42.9billion.
Much of this was down to a surge in inflation to which index-linked gilts are pegged.
The main rate of inflation has jumped from 0.2 per cent in August 2020 to a decade high of 5.1 per cent in November, amid warnings it is heading for a 30-year high of 6 per cent.
The Bank of England put up interest rates from 0.1 per cent to 0.25 per cent in its first step in the battle to control inflation. More rises are expected in 2022 – further pushing up debt servicing costs.
Mark Littlewood, director general of the Institute of Economic Affairs, said the situation was ‘dire’. He went on: ‘There are only two real ways out of this mess over the long run.
‘You either have to substantially increase tax revenues or substantially lower spending, or a mixture of the two.
‘As with most problems, the debt problem gets worse the longer you delay facing up to it.’