Interest payments on government debt hit a record £8.1bn for the month of December because of surging inflation, according to official figures.
The Office for National Statistics (ONS) said the cost of servicing the country’s £2trn+ debt pile was almost 200% or £5.4bn up on December 2020.
It is because half a trillion pounds worth of government bonds are linked to the Retail Prices Index (RPI) measure of inflation which stood at 8.4% in December – its highest level since 1991.
In December, the RPI uplift on index-linked gilts was calculated at £5.5bn.
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Cost of living crisis lies in wait
“The recent high levels of debt interest payments are largely a result of movements in the RPI to which index-linked gilts are pegged”, the report said.
The additional cost is a burden the chancellor could well do without as the government remains under pressure on many fronts, with a planned National Insurance tax hike in April to fund social care facing a growing Tory backlash as household and corporate bills grow in the face of the inflation problem.
The main consumer prices index is already at its highest for almost 30 years and tipped to shoot up further when an adjustment to the energy price cap is made that could, according to industry experts, see average bills hit £2,000 annually without government intervention.
UK economist at Pantheon Macroeconomics, Samuel Tombs, said of the ONS data: “Surging inflation is making the chancellor’s task of returning the public finances to a sustainable footing much more difficult.”
Rishi Sunak said of the figures: “We are supporting the British people as we recover from the pandemic through our Plan for Jobs and business grants, loans and tax reliefs.
“Risks to the public finances, including from inflation, make it even more important that we avoid burdening future generations with high debt repayments.
“Our fiscal rules mean we will reduce our debt burden while continuing to invest in the future of the UK.”
The wider ONS figures showed that the government borrowed less than economists had expected last month.
The Treasury’s borrowing needs have eased considerably since the end of support schemes such as furlough
Public sector net borrowing, excluding the effects of bank bailouts during the financial crisis, totalled £16.8bn.
It took the amount from April to December to £146.8bn – £129bn less than at the same point in the 2020/21 financial year when the COVID-19 crisis demanded an unprecedented rise in peacetime spending to support the economy and health services.
The ONS said the year-to-date total included a £6bn downward revision to borrowing up until November.
Corporate tax revenues hit £5.5bn in December – a record at current prices – and largely explained by large companies paying their tax bills quarterly.