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The cash eaten up by interest payments on Government debt will more than double in the next four years as investors take fright at Britain’s balloning budget deficit, the country’s leading independent forecaster has warned.
Within four years, almost 9p in every pound of tax paid by British individuals and companies will be spent directly on servicing the Governemtn’s debt, rather than on services such as hospitals and police, or the costs of running defence or the welfare state, according to new calculations. At present, the debt interest costs an average of around 5p for every pound in tax.
The National Institute of Economic and Social Research said that due to a combination of higher interest rates and a far greater debt burden, the costs of servicing government debt will rise from ￡25.6bn this fiscal year to ￡50.7bn in 2013/4. the warning underlin es the cost facing taxpayers as the Government debt rises at the fastest rate in peacetime history.
Families will have to endure a stinging combination of public spending cuts and tax increases over the coming years as a result, NIESR said. It came as newly-released official figures showed that the black hole in the Government’s accounts is groing at the fastest rate in history.
The figures, published today in NIESR’s latest assessment of the British economy, underline the fiscal crisis facing Britain as a direct result6 of the financial and economic crisis. The Treasury has had to contend with a sudden collapse in tax revenues from City firms and struggling businesses, alongside a sharp increase in the cost of benefits for the rising ranks of the unemployed.
NIESR also pointed out that the fall in Gross Domestic Product during the first quarter was likely to have been the sharpest ever since the General Strike of 1926. and although it predicted that the economy would be growing again before the end of the year, it cautioned that GDP figures for the second quarter, out on Friday, would show another sharp fall in UK’s economic output.

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