That would bring total government borrowing to £2.3 trillion.
Interest payments on government debt shares will be around £7.5 billion, bringing the total for the year to April to £71.5 billion.
It is rising due to rising RPI inflation whereby the gilts associated with the index are pegged.
That sounds bad.
Obviously it’s not good. That would be a record high number. And only higher and higher. Capital Economics thinks interest on debt will hit £100 billion next year, far more than the £83 billion OBR forecast.
What does that mean?
In short, not much unless you are a politician. It’s not like Rishi Sunak has to write a £100 billion check. It is paid at a trickle rate for many years.
It is now classified as an expense (accounting, tsch) but not as cash in reserve.
There’s a good look at it here from Julian Jessop at the Institute of Economics: https://iea.org.uk/media/higher-inflation-can-still-be-good-for-the-public-finances-says-iea-economist/
However, it is a headache for the Prime Minister as he tries to control the nation’s finances and ease the cost of living crisis.
Falling GDP hardly helps. “With the Prime Minister constrained by both public finances and his desire not to make inflationary pressures worse, any further fiscal easing could be targeted and small,” Capital said. .”
Where are these interest payments going?
That’s a good question, rarely asked. It is passed on to holders of UK government bonds. UK pension/insurance funds own around 30% of all gilts, the Bank of England owns around 30%, foreigners own around 25% and the rest is owned by other financial businesses of the United Kingdom and held by households in the United Kingdom.
So wait, 60% of this at least just comes back to us?
Yes, either a dividend to our pension or just return to the Bank of England. Payments to offshore institutions can be frustrating, but why are they holding onto debt? Because they trust us. They know for sure that they will get paid. That makes it easier and cheaper for us to borrow over the long term.
This sounds like something I shouldn’t worry about.
I wouldn’t say it, but there are worse things. For example, the economy is falling into a recession, which is starting to look increasingly likely.
But it is the transfer of money from the public to the private sector, which means the government cannot control what is done with it.
Is the UK going to go bankrupt?
It really can’t. If we are borrowing money in someone else’s currency it can happen, but we are not. If we needed more pounds, we just had to invent them.
This is not to say that we should, the effect of doing so is inflationary. But we can.
So we should keep saving money about?
Depends on what we’re spending it on. Tax breaks for Ferrari drivers are not good. Money to prevent old folk from freezing in their homes as well.