Taxpayers ultimately pay the national debt
(Picture: Dominic Lipinski/PA Wire)Liz Truss’s government is cutting taxes instead of raising them, which is expected to cost billions.
Industry estimates suggest the bill could be between £130bn and £150bn, although the Government has yet to publish a total figure.
It is understood that the Government will use borrowing to pay for the new measures.
The total amount the Government borrows is called the national debt, because the money has to be paid back eventually - with interest.
This means taxpayers ultimately pay.
Where does the Government borrow money from?
The Government borrows money by selling bonds.
A government bond, better known as ‘gilts’, allows the Government to loan money in exchange for an agreed-upon interest rate.
Gilts are mainly bought by financial institutions, such as pension funds, investment funds, banks, and insurance companies, from the UK and abroad.
The larger the national debt, the more interest the Government has to pay on all the bonds it has sold.
Up until recently, the Government could borrow money at rates that were less than one per cent. However, both interest rates and the Government's interest expense have been rising.
This rise in inflation caused interest payments on the nation's debt to reach a new high of £8.2 billion in August.
Debt-interest payments are expected to exceed £100bn, and that’s without accounting for the most recent effort to restrain the rise in energy prices, which is predicted to make things much worse.
Is the Government in a lot of debt?
According to the latest figures available, the Government is in £2.4tn debt, which is almost equal to the annual value of all the goods and services generated in the UK.
During the pandemic, the Government took out large loans during the pandemic to pay for programmes like furlough.
According to the National Audit Office, £376bn was spent fighting Covid.
