How much interest will we be paying

December 17th, 2008 · No Comments

At the end of August 2008, UK National debt was £637.4 billion. (or 43% of National GDP) – Source: Office National Statistics. It is estimated National debt will rise to 45% of National Debt by April 2009.

However, it is argued that UK’s national debt is actually a lot higher. This is because national debt should include pension contributions and private finance initiatives PFI which the government are obliged to pay.

The Centre for Policy Studies argues that the real national debt is actually £1,340 billion, which is 103.5 per cent of GDP. This figure includes all the public sector pension liabilities such as pensions, and Private Finance Initiative contracts e.t.c (Northern Rock liabilities).

But how much does this cost us?

Interest Payments. The cost of paying interest on the government’s debt is very high. In 2008 Debt interest payments will be £31 billion a year (est 2.5% of GDP). In 2009, they will be £35 billion (similar to defence budget). Public sector debt interest payments could be be the 4th highest department after social security, health and education.

Higher Taxes in the future. (Thanks, Gordon Brown, lets hope you pay your fair share).

Crowding out of private sector investment / spending

The debt problem will only get worse as an ageing population places greater strain on the UK’s pension liabilities. (demographic time bomb)

So when we are next faced with bills we can not afford to pay, should we follow Gordon’s example and borrow more or should we knuckle down and do some work to earn extra?

Tags: Ramblings

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