Government debt repayment ‘could rise to half’ of total taxes

New modelling by the Institute for Public Policy Research, a favoured Labour think tank, suggests that by 2075, nearly half of the taxes paid by children and young people could be spent on servicing government debt. The report warns that debt interest payments could account for 47% of the government's total income in a worst-case scenario.

Currently, debt interest payments constitute around 8% of total public expenditure and 3.6% of GDP. The IPPR warns that younger generations, including those born between 2025 and 2039, would be severely disadvantaged by the scale of interest payments on government debt. Debt interest payments for the current financial year are projected to total £110bn, which is nearly the size of the education budget and more than double the amount spent on defence.

The think tank's calculations are based on data measured by the government's fiscal watchdog, the Office for Budget Responsibility. OBR chiefs have warned that health spending and pensioner spending are set to increase as a proportion of GDP, while productivity growth could be affected by climate change-related shocks. The IPPR calls for a reformed fiscal framework that distinguishes borrowing for long-term investments that boost productivity from borrowing that merely adds to liabilities.

The framework should include a dashboard of indicators and a backstop clause that triggers if the ratio of debt servicing to total expenditure exceeds 15%.