The winner of the Conservative party leadership contest will face huge additional costs of servicing the nation’s debt and paying social security benefits as a result of rising inflation and interest rates.
The estimates, which are an update to the Bank of England’s previous official inflation forecast in March, show that the UK’s debt and welfare payments bill will go up by more than £50 bn next financial year.
The findings forecast that debt service costs are likely to almost double next year from £50 bn to £95 bn because £500 bn of the UK’s public debt is linked to the consumer price index.
That bill falls as inflation comes down, but is replaced by higher social security benefits, which are also linked to prices, and are set to be £23 bn higher every year by the time of the next election.
These payments will leave the new Tory leader hoping that tax revenues remain strong, helped by high inflation, at a time when the BoE thinks the economy will slide into recession.
In March, the Office for Budget Responsibility said that ministers would meet their own fiscal rules with £30 bn headroom to spare in 2024-25. But officials close to the Treasury and OBR say more severe forecasts will be laid bare by the fiscal watchdog by the time the new prime minister takes office.
