Britain will spend nearly £600billion on interest payments over the next five years as the cost of government profligacy mounts, official forecasts showed.
As Rachel Reeves unveiled her Spring Statement yesterday, the Office for Budget Responsibility (OBR) revealed that servicing the ballooning national debt will cost taxpayers around £30billion more than previously forecast by 2030.
And the budget watchdog’s figures showed that the national debt will rise by nearly £600billion to well over £3 trillion by the end of the decade as the country continues to live beyond its means.
Britain spends more in interest payments than on defence, the Home Office and justice combined, having failed to balance the books since 2001.
Debt has steadily risen from around £300billion then to £2.8 trillion today, with the sharpest increases coming in the financial crisis and Covid-19 pandemic.
The Debt Management Office yesterday said it will issue another £299.2billion of gilts in 2025-26 – the second highest figure on record after the £485billion sold at the height of the Covid crisis.
Debt burden: The Chancellor blamed the recent rise in the interest bill on global economic uncertainty as the cost of borrowing has risen for governments around the world
The Chancellor rushed to blame the most recent rise in the interest bill on global economic uncertainty as the cost of borrowing has risen for governments around the world.
But economists said Reeves shares responsibility after her tax-hiking Autumn Budget strangled growth.
Markets were febrile on fears that Reeves’ near-£10billion fiscal buffer will once again be eroded, forcing her to hike taxes, cut spending or borrow more at the Autumn Budget. Sterling weakened after her statement, falling below $1.29, while gilt yields rose before falling back.
Sanjay Raja, chief UK economist at Deutsche Bank, said: ‘To be clear, these buffers remain wafer thin.’
Investec chief economist Philip Shaw added: ‘If things go badly with the economy and the public finances, then the Chancellor will be back to square one, perhaps with a need to tighten spending again or perhaps tax increases or even a combination of both.’
Rob Wood, chief UK economist at Pantheon Macroeconomics, said: ‘Further tax hikes and borrowing are coming.’
Reeves is under pressure to increase defence budgets and spend more on health to serve an aging population.
But she has been blamed for stifling growth with policies announced in her October Budget, such as the controversial National Insurance hike for businesses.
Reeves told Parliament yesterday ‘the global economy has become more uncertain, bringing insecurity at home as trading patterns become more unstable and borrowing costs rise for many major economies’.
Alan Vallance, chief executive of accounting industry group ICAEW, said: ‘The Chancellor is right that the world has changed and that we as a country have to adapt.
‘But much of the sluggish growth since October has been self-inflicted after the Budget damaged the conditions for growth, which means continued low productivity levels and stagnant living standards.’
Debt interest spending this year has hit £105.2billion. It will rise to £111.2billion in 2025-26 and total £596.3billion over the five years to 2029-30. This is £29.3billion more than the OBR forecast in October.
Spending on debt interest is around twice as high as the ten years leading up to Covid when it averaged 2 per cent of GDP.
Public sector net debt will hit £3.39 trillion by the end of the decade, up from £2.81 trillion today – an increase nearly £578billion, the OBR forecast showed.
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