It will take common government loans up to 2.3 trillion.
Interest payments on the national debt will amount to about 7.5 billion pounds, which is 71.5 billion pounds for the year to April.
It is growing due to the increase in RPI inflation to which index pigs are tied.
That sounds bad.
Obviously this is not good. That will be a record high. And only above. Capital Economics estimates that interest on debt will be £ 100 billion next year, well above OBR’s forecast of £ 83 billion.
What does that mean?
In the short term a little if you are not a politician. It’s not that Rishi Sunak has to write a check for £ 100bn. It has been paid for for many years.
This is now classified as expenses (accountants, tsch) but not cash leaving the reserve fund.
Here is a good look at it Julian Jessup from the Institute of Economic Affairs: https://iea.org.uk/media/higher-inflation-can-still-be-good-for-the-public-finances-says-iea-economist/
However, for the Chancellor it is a headache as he tries to take control of the country’s finances and alleviate the cost of living crisis.
Falling GDP hardly helps. Capital says: “As the Chancellor is constrained by both public finances and a desire not to exacerbate inflationary pressures, any further budget cuts could be targeted and small.”
Where does this interest go?
This is a good question that is rarely asked. It goes to holders of UK government bonds. Insurance / pension funds in the UK own about 30% of all accounts, the Bank of England owns about 30%, foreigners own about 25% and the rest are owned by other UK financial companies and UK households.
So wait, 60% of this will at least come back to us?
Yes, either as dividends on our pensions, or just back to the Bank of England. Payments to foreign institutions can be annoying, but why do they keep debt? Because they trust us. They know exactly what they will be paid. This, in turn, makes it easier and cheaper for us to take out loans in the long run.
That sounds like something I shouldn’t worry about.
I wouldn’t say so, but there are worse things. For example, the economy will fall into recession, which is becoming more likely.
But it is the transfer of money from the public sector to the private, which means that the government cannot control what is done to them.
Is the UK stealing?
It really can’t. If we borrowed money in foreign currency, it would be possible and we would not. If we need more pounds, we just make them up.
That doesn’t mean we should, the consequences of this are inflationary. But we can.
So we should just keep throwing money away?
Depends on what we spend it on. Tax breaks for Ferrari drivers are bad. Money to keep old people from freezing to death in their homes is good.