Debt Interest Nears £100bn as War Shrinks the Chancellor’s Headroom
About £100bn of the roughly £1.42tn Healey will allocate this year goes on debt interest, with government borrowing costs at multidecade highs since the war on Iran began in February. The Resolution Foundation estimates the £24bn buffer built at the last tax-raising Budget has halved to about £12bn. Manifesto pledges rule out raising income tax, National Insurance or VAT.
The Institute for Fiscal Studies calls the backdrop “unquestionably bad news for the economy”. It estimates that higher debt-servicing costs from the conflict will add £10bn–£15bn to borrowing in 2029-30, and that spending plans which already looked tight will get tighter with inflation. “We have a relatively new government with seemingly big ambitions but facing a long list of constraints,” said its director, Helen Miller. Healey is spending about £1bn a month more than forecast. A £4.7bn gap in the defence investment plan is to be plugged largely by cuts elsewhere. The roadmap to 3% of GDP by 2030 waits for next year’s spending review. As Healey himself said last month, “Britain has it harder now.”