‘Worryingly large’: Labour’s debt cost racks up to £200bn
More than £200bn has now been spent on covering government debt since Labour came into power, official figures show, reflecting the pressure bond traders have put on public finances in the last two years.
Analysis of public finances data by City AM shows that debt interest payable to the government’s lenders in bond markets since July 2024 now adds up to about £206.4bn.
In August, Chancellor John Healey faced an £8.8bn bill on UK debt. The total debt pile is meanwhile nearing a total of £3 trillion milestone, which could be reached as soon as next month.
The huge debt interest bill underpins Healey’s battle with the markets as debt interest costs each year make up nearly a tenth of total government spending and come to about double the size of the defence budget.
Government borrowing costs have come into focus following a bond rout across the world. The Iran war’s inflationary impact has added to fears interest rates will be hiked across major economies while top governments have struggled to control public finances and ease concerns over borrowing levels.
Gilt yields, or the interest on UK government bonds, have suffered from larger rises than other countries in the last few months over fears that the disruption in oil and gas trade could lead to higher prices for British consumers and borrowing could remain high. Recent data showed that UK borrowing targets were missed.
Economists and traders have hit out at successive chancellors’ struggle in reining back public spending and lowering the debt pile as a share of GDP given it has hovered between 93 per cent and 94 per cent over the last two years.
Former Chancellor Rachel Reeves loosened the fiscal rules after Sir Keir Starmer entered Number 10 in mid-2024 to allow more borrowing for investment in infrastructure. Healey has kept the same rules in place.
Debt interest bill is ‘worryingly’ large
Nick Ridpath, research economist at the Institute for Fiscal Studies, said debt interest spending was a “worryingly large share of overall government spending and has been pushed up since the OBR’s March forecasts”.
“Both higher borrowing costs and higher inflation make life harder for a Chancellor who is looking to bring down borrowing and to spend more on government priorities,” Ridpath said.
The Office for Budget Responsibility, the independent watchdog, said debt interest payments would total about £137bn in the financial year between 2030 and 2031. This year, the government is expected to spend just under £110bn on debt interest.
Top accountants at the industry group ICAEW urged Healey to “stabilise the public finances to avoid market surprises”, which could help reduce debt interest costs.
Shadow chancellor Andrew Griffith said the £200bn bill was an “insane amount”.
“When you go on a borrowing spree, the interest catches up with you,” he said.
“Had Labour run the public finances better much of that could have been saved for defence, healthcare or lower taxes.”
Chief secretary to the Treasury Emma Reynolds said the government was determine to meet borrowing targets in order to reduce payments made to its lenders.
“At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services,” Reynolds said.
“That is why we are committed to meeting our fiscal rules with a buffer against uncertainty, taking the tough decisions needed to keep the public finances on a sustainable path.”