An unsustainable mountain of debt

The latest figures showing that UK public sector net borrowing was at a record level in December have put paid to any talk of tax cuts in the March Budget. The Chancellor had already said as much even before the Office for National Statistics revealed the hole in the public finances to be bigger than expected.

The biggest upward driver has been interest charges on the debt which last month accounted for an extraordinary £17billion, fuelled by higher inflation as well as the Government’s measures to help households and businesses with soaring energy prices.

Borrowing hit £27.4billion, up from a revised £10.7billion in the same month in 2021, the highest December borrowing since monthly records began in 1993. It was well above the £17.6billion forecast in November by the Office for Budget Responsibility (OBR), on which the Chancellor based much of his Autumn Statement calculations.

In the financial year to December 2022, the public sector borrowed £128.1billion, which was £2.7billion less than forecast by the OBR but £5.1billion more than that borrowed in the same period last year. Overall debt at the end of last year was a barely credible £2.5trillion, almost 100 per cent of gross domestic product, with the debt to GDP ratio at levels last seen in the early 1960s.

Clearly, the pandemic has had much to do with this, or rather the economic shutdown that necessitated vast sums to be spent keeping people in jobs and able to survive when they could not go to work. Debt interest repayments are now the biggest outlay after the NHS and welfare payments, dwarfing spending on defence, education or transport. The cost of servicing government debt has shot up, with the interest payable on indexlinked gilts rising in line with the retail prices index. These pressures should ease as inflation abates this year.

The country was already spending beyond its means before the pandemic, but what we are now seeing is the substantial cost of mitigating current difficulties passed on to future generations. To get us through Covid and the cost of living crisis caused by Russia’s invasion of Ukraine, we have accumulated a debt mountain that our children and theirs will struggle to pay off. They will have to look after a far bigger elderly population, while also being taxed more to prop up an ailing health and social care system that fails to improve, however much is spent on it.