Interest payments on the national debt rose 70 per cent last month to £7.6 billion (compared with a year earlier) – largely because of the impact of inflation on income paid to holders of index-linked gilts, which are inflation-protected government bonds. More worryingly, this was 49 per cent more than the official forecast made in March by the Office for Budget Responsibility (OBR).
It suggests the OBR’s forecast that the government will have to pay £87.2 billion in interest payments (a colossal sum) may be too low, especially since the ONS is not factoring in the most recent inflation figures in its calculations of the monthly bill. Little wonder Rishi Sunak says 'rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets'.
He’s not crying wolf. To put that in some kind of context, government spending on education is circa £100 billion. It is not inconceivable the debt interest bill for the government will end up being of the same magnitude.
And as the rail strike and likely future strikes by teachers and other public service workers show, the pressure on the government to spend more to protect employees’ incomes will be relentless for months.
But every time the government borrows to fund additional pay rises – or to fund tax cuts demanded today by the CBI business lobby group – the interest bill rises.
Political expediency and economic reality are about to collide in the most painful way for Boris Johnson and his government. It is not hyperbole to say this feels like an emergency. The pressure on Johnson to acknowledge the magnitude of this economic and financial shock and set out a plan – rather than whacking moles on a daily basis, to use a Johnsonian metaphor – will only intensify.