£ 1,000 each: the cost of servicing Britain’s national debt as borrowing frenzy pushes it to £ 2.3 trillion
The cost of servicing Britain’s burgeoning national debt is expected to hit nearly £ 1,000 per person this year as borrowing costs soar.
A dramatic borrowing frenzy has taken the debt build-up from just £ 354 billion at the turn of the century to a staggering £ 2.3 trillion today.
And the cost of servicing that debt is skyrocketing as higher borrowing costs and rising inflation add billions to interest payments.
The growing debt of the UK nation is a major headache for Chancellor Rishi Sunak (pictured) as he seeks to fix the country’s ailing finances
Experts at auditing, tax and advisory firm KPMG estimate that interest payments on debt will total £ 64bn in 2021-2022, or £ 955 for every person in the UK. This is an increase from £ 39bn last year.
This means Britain is spending more on paying interest on debt than on defense, and is a major headache for Chancellor Rishi Sunak as he seeks to fix ailing finances and free up money for tax cuts before the next election.
Michal Stelmach, senior economist at KPMG UK, said the impact of rising inflation and rising interest rates on the cost of servicing the national debt could add £ 11 billion to borrowing in 2022-2023.
It would “eat up more than half of the Chancellor’s current budget margin” – the war chest with which Sunak hopes to win 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 to the government. Ministers must control public spending and prevent debt from soaring further.
“If they don’t, it will only continue to weigh on taxpayers for generations to come.”
National debt has swelled this century as Labor lost control of public finances during the financial crisis and spending skyrocketed during the pandemic.
The debt burden now accounts for 96.1% of gross domestic product – the highest level since 1963, when the impact of World War II was still being felt on public finances.
Record interest rates made debt manageable for much of the post-financial crisis.
But interest payments rose 54% in the first eight months of the fiscal year, from £ 27.8 billion to £ 42.9 billion.
Much of this is due to a spike in inflation to which indexed gilts are pegged.
The main inflation rate rose from 0.2% in August 2020 to a decade high of 5.1% in November, amid warnings that it is heading for a 30-year high of 6%.
The Bank of England has raised interest rates 0.1 to 0.25 percent in its first step in the battle to control inflation. Further increases are expected in 2022, which will further increase debt service costs.
Mark Littlewood, director general of the Institute of Economic Affairs, said the situation was “catastrophic”. He continued, “There are only two real ways out of this mess in the long run.
“You have to either dramatically increase tax revenues or significantly reduce spending, or a mixture of the two.
“As with most problems, the debt problem gets worse the more you delay dealing with it.”