In May, interest payments on government debt reached an all-time high due to rising inflation.
The government paid £7.6 billion in interest last month, an increase of £3.1 billion from the previous year.
Government borrowing decreased in May compared to the same month a year ago but remained greater than pre-Covid levels.
The Office of National Statistics said that borrowing – the difference between spending and tax income – was £14 billion, a decrease of £4 billion from the previous year.
It was also £3.7bn higher than the Office of Budget Responsibility (OBR) had anticipated.
Recent high levels of debt interest payments are mostly due to rising inflation, according to the ONS.
This is because the interest paid on government bonds has increased in tandem with the Retail Prices Index, which reached over 12 percent in May.
So far this fiscal year, interest payments have totaled £14.1 billion, an increase of £4.7 billion year-over-year.
The ONS reported that May’s amount was the third-highest monthly debt interest payment made by a government.
The OBR projects that government debt interest payments will cost £87,2 billion during the fiscal year ending in March 2023.
Chancellor Rishi Sunak stated that rising inflation and growing debt interest rates “provide a challenge for governmental finances, just as they do for household budgets.”
Danni Hewson, a financial analyst at AJ Bell, cited the increase in interest payments on government debt as a “great example” of how inflation is felt everywhere.
An economist at KPMG UK, Michal Stelmach, stated that decreasing debt this year remained a “long shot” due to the additional financial assistance granted to people burdened by rising fuel, energy, and food prices.
We expect borrowing to exceed the OBR’s March prediction by approximately £20 billion this year, mostly due to increased spending and slower economic growth, he said.
May 2022 central government collections were £66,6 billion, an increase of £5.7 billion from May 2021, with an annual rise in taxes of £3.4 billion.
In May, total tax receipts increased to £48.3 billion, with National Insurance Contributions (NICs) bringing in £2 billion more than the previous year.
On April 6, employees, employers, and self-employed began paying 1.25 pence higher per pound for National Insurance.
Ms. Hewson attributed the increase in tax revenue to a “combination” of factors, including the return of VAT to normal levels on hospitality, the increase in National Insurance contributions, the “simmering” housing market, and the return of the labor force to the workforce.
“However, any household examining its finances would recognize that a budget with more expenses than income is neither healthy nor sustainable,” she continued.
