£2,400... the cost each family pays to cover UK debt

SOARING interest payments on the UK’s £2.3trillion national debt are set to top £100billion a year.

The staggering sum will cost each household £2,426 a year – more than £500 higher than previously forecast as galloping inflation pummels the public finances.

It means taxpayers are now paying more on debt interest than is spent on the entire education budget. Only funding the National Health Service and state pensions cost the taxpayer more.

The interest bill, which has already more than doubled since before the pandemic, could undermine Chancellor Rishi Sunak’s ability to tackle the escalating cost-of-living crisis.

Last week he appeared to rule out tax cuts until rampant inflation, forecast to hit 11 per cent by the end of this year, is brought under control. And Levelling Up Secretary Michael Gove warned that the Government would not be able to help everyone in the ‘tough times’ ahead.

The cost of Government borrowing is highly sensitive to both inflation and interest rates. The Bank of England last week bumped up the cost of borrowing to 1.25 per cent, the fifth rise in a row. Financial markets reckon that could hit three per cent by the end of the year.

In March the independent Office for Budget Responsibility (OBR) said interest payments on the Government’s £2.3trillion debt would peak at a record £83 billion in the year to April 2023, already double what it had predicted just five months earlier.

Now analysis using the OBR’s own forecasting model reveals the figure could instead hit £106billion as interest rates continue to rise – an increase of £23billion in less than three months.

But Gerard Lyons of wealth manager Netwealth, and a former adviser to Boris Johnson, warned the increased debt burden ‘should not tie the Treasury’s hands’ as it battles the cost-of-living crisis.

‘The Treasury is right to be concerned about the rising cost of debt service but this shouldn’t be used as an excuse to cut Government spending elsewhere, or to not cut taxes,’ he said.

The OBR did not dispute the new calculations, but declined to confirm them. Its updated forecasts are due in November.

A Treasury spokesman said: ‘We’ve always been aware of risks to debt interest costs from rising inflation and interest rates, which is why we have taken a balanced and responsible approach to the public finances.

‘We’re supporting people with the cost of living and investing in the future of our economy, while remaining committed to getting debt down.

‘Like the rest of the world, the pandemic damaged the UK’s economy and tough decisions have been made to get the UK’s rate of borrowing and debt down, for the long-term benefit of the UK and for the next generation.’