More and more of Britain’s wealth is going to service debt – instead of investment. Photo ICP/incamerastock/alamy.com.
Borrowing is on the rise, and debt interest is a big part of government expenditure…
Figures released by the Office for National Statistics at the end of July were remarkable for the increases in government debt – and for the increases in the amount of money the government is having to spend to service that debt.
The Treasury had to borrow £20.7 billion in June 2025 – a rise of 46 per cent compared with June 2024. Meanwhile, interest payments in June 2025 totalled £16.4 billion, almost double the figure of £8.4 billion in June 2024.
To put those figures into context, just the increase in interest repayments in June alone would be enough to pay for the full restitution of the winter fuel allowance for 18 years.
Government debt in itself is not necessarily a bad thing. Even ballooning debt needn’t be problematic. It’s all a question of why the debt is being incurred – and how the government plans to pay for it.
The problem in Britain is that the debt is rising because a stagnating economy is not delivering enough in terms of income tax and corporation tax. And to make matters worse, Labour’s Treasury has chosen a route that can only increase stagnation: to increase taxes and hold down public investment until the debt declines, at least as a proportion of GDP. That fits with British capitalism’s long-held aversion to investment.
Accelerating decline
It’s an approach that, in practice, seeks to deal with decline by accelerating decline. A paper from the Office for Budget Responsibility forecast that public sector investment would fall from a miserly 2.5 per cent of GDP in 2023-2024 to 1.75 per cent by the end of the decade. That’s a far cry from the 4.5 per cent of GDP that was the average level of public sector investment from 1949 to 1978.
‘To make matters worse, Labour has chosen a route that can only increase stagnation…’
A chunk of the decline in investment was due to the large-scale privatisation of the utilities. Despite claims that privatisation would enable the injection of private finance, capital expenditure by the water and sewage companies for example was less in 2021 than it was in 1991 – without accounting for inflation of 73 per cent over the period.
Britain’s finance capital would rather do anything than invest in production. Yet the truth is that the only way to stabilise the economy – let alone improve it – is to expand production through improving productivity, and that cannot be done without investment.
Overall, the economy grew at about 0.5 per cent a year between 2010 and 2022, measured in output per hour – insufficient even to keep pace with Britain’s rapidly increasing population. The only reason that GDP over the period rose by slightly more (it actually went up by an average of 1.2 per cent a year) is that people have been working longer hours.
As the Productivity Institute wrote in 2023, the increase in hours worked has contributed more to GDP than improvements in productivity. “Many UK firms have been following an unsustainable low wage, low investment, low productivity path,” it said.
That’s a recipe for the debt to grow.
Meanwhile, local government debt continues to mushroom as well. Research by The Times, using Freedom of Information Act requests, published on 18 August revealed that interest payments on council debts account on average for £1 out of every £5 raised in council tax. The figure has gone up 65 per cent since 2015.