Interest payable on government debt remains persistently high

For the second month of the fiscal year, government net borrowing has overshot the OBR forecast. The net debt stock has reached a new 21^st century high and as interest rates continue to rise, the relative burden of this debt will continue to grow.

The 2023/24 financial year has begun with significant net borrowing reaching a cumulative £42.9 billion in May – £19.6 billion more than the same point in 2022/23. This is only outstripped by the 2020/21 financial year where cumulative net borrowing reached £100.5 billion by the same point. Compared to 2019/20, net borrowing is £26.5 billion ahead this year highlighting the unprecedented scale of borrowing by the government.

The COVID-19 pandemic and the energy crisis have driven net debt to level not seen since the 1960s, reaching 100.1% of GDP in May. The OBR predicts that it will continue to grow to 103.1% by the end of the 2024/25 financial year before falling. Our latest CBI public sector finance forecast is more optimistic, suggesting that net debt will end this financial year at 99.9% of GDP before falling each year thereon.

The growing concern around this scale of borrowing and debt stock is how the uprating of interest rates are increasing the burden of servicing the debt. Cumulatively, £2.6 billion more has been spent this financial year on interest payments than over the same period in 2022/23. The 2022/23 financial year saw a total of £107.0 billion spent on servicing the debt – approximately 10% of total government expenditure for the financial year – which reduces fiscal space, while drawing expenditure away from more pressing areas.