Britain's national debt is on course to hit £4 trillion early in the next decade, as a fast-rising benefits bill and heavy government borrowing push the country's finances further into the red.
Official data released last week showed government debt is just below £3 trillion, a milestone it looks set to reach in the coming months. The debt stood at £350 billion at the turn of the century.
The Office for Budget Responsibility (OBR), the government's independent fiscal watchdog, forecasts the debt will reach £3.5 trillion in 2030-31, a tenfold rise in 30 years. Analysis of International Monetary Fund projections by Nomura economist George Buckley suggests it could hit £4 trillion as soon as 2033.
Pressure on the Chancellor
The figures underline the challenge facing Chancellor John Healey as he prepares his first Budget in October, amid turmoil on the bond markets that has sent borrowing costs soaring.
"UK government debt has risen more than most since the financial crisis, so Healey needs to be ultra-cautious and stick to both the letter and spirit of the fiscal rules if he's to keep the financial markets onside," said Buckley. The fiscal rules are the borrowing targets the Government has pledged to meet, intended to reassure investors that the public finances are under control.
Highest Borrowing Costs in the G7
UK bond yields, known as gilts, are the highest in the Group of Seven leading economies, meaning it costs Britain more to borrow than the United States, France, Germany or Italy.
The yield on ten-year gilts stands above 5 per cent, while the yield on 30-year gilts is close to a 28-year high, above 5.8 per cent.
Thomas Pugh, chief economist at consultancy RSM UK, said: "The cost of borrowing is squarely back in the headlines. Investors are watching every borrowing number for clues about how seriously the new Government takes fiscal discipline."
"Borrowing more is becoming an increasingly expensive way to solve the Government's problems," he added.
A Debt Three Centuries in the Making
The national debt took more than 300 years to reach £1 trillion, a level it hit in 2010. It passed £2 trillion in 2020 and is set to hit £3 trillion this year, a figure close to 100 per cent of gross domestic product (GDP).
The surge has been driven by a series of shocks, including the financial crisis, the pandemic, the energy crisis triggered by Russia's invasion of Ukraine, and heavy government spending.
Benefits and Interest Bills Mount
Benefits are costing the taxpayer £1 billion a day, while the cost of servicing the national debt is also climbing. Taxpayers are expected to pay out more than £730 billion in interest payments over the next six years, more than is spent on defence.
The OBR has warned that the public finances are heading towards an "unsustainable and ever-rising path" that could see debt climb to 300 per cent of GDP by 2075-76.
Its forecasts show that an ageing population will drive up spending on health, social care and pensions. Ministers are also under pressure to increase the defence budget while pressing ahead with costly Net Zero commitments.
