National debt reaches highest level in two decades

The UK government is facing a 20-year high in the interest it pays on its national debt, as the rate on 30-year bonds reaches 5.05%. This increase in borrowing costs poses a challenge for the chancellor, Jeremy Hunt, as he prepares for the autumn statement on 22 November. Hunt has already stated that tax cuts will not be announced in November, and the higher cost of servicing the country's debt further limits his options. The national debt currently stands at around £2.59 trillion, with the government borrowing money by selling bonds. Bonds are financial products that require the borrower to make regular interest payments over the bond's lifetime. UK government bonds, also known as "gilts," are usually considered very safe, with little risk of non-repayment. They are primarily purchased by financial institutions such as pension funds, investment funds, banks, and insurance companies in the UK and abroad. The Bank of England has also engaged in quantitative easing, buying billions of pounds' worth of government bonds to support the economy. With a higher interest rate on government debt, the chancellor will need to allocate an additional £23 billion to meet interest payments to bondholders. As a result, there will be less money available for public services such as healthcare and education, at a time when workers in key industries are demanding wage increases to match the cost of living. Although the current level of UK debt is more than double what it was from the 1980s until the financial crisis of 2008, it is still relatively low compared with most of the last century when considering the size of the economy. Borrowing costs for the US, Germany, and Italy have also reached their highest levels in over a decade as markets adjust to expectations of prolonged high interest rates and global government borrowing. Global central banks, including the US Federal Reserve and the Bank of England, have indicated that interest rates will remain "higher for longer" to combat inflation. In the last financial year, the UK government spent £111 billion on debt interest, surpassing its spending on education. Some economists express concerns about excessive borrowing and its associated costs, while others argue that additional borrowing can stimulate faster economic growth and generate more tax revenue in the long term. The Office for Budget Responsibility (OBR), the government's official economic forecaster, has warned that public debt may surge as the population ages and tax revenues decline. In an aging population, a decrease in the proportion of people of working age leads to reduced tax income and increased pension payouts.