Chancellor Accused of Hiding £60 Billion in Interest on UK Debt

Standing before the Treasury Select Committee, a cross-party group of UK politicians, Chancellor Alistair Darling was grilled about why he had not published the interest cost estimates for Britain’s record setting national debt. The committee’s eldest Tory member, Michael Fallon, directly asked Darling why he had chosen to obscure the fact that the annual interest accumulated on the debt would reach £60 billion in just four years.

Darling, for his part, responded that he had not concealed the numbers of the interest on the UK’s £178 billion deficit in his Pre-Budget Report. He told an outraged Fallon that over the past decade such figures were released on a three year programme and thus, he intended to continue with that tradition. Critics feel Darling is ‘working the system’ to favour his party in the coming elections, scheduled for May of 2010.

Thus far, the world’s most powerful agencies of credit rating have not tarnished the UK’s outstanding impressive credit rating, but after the elections, the situation could change. A downgrade could cause major havoc for the UK economy because it would mean the Treasury would be forced to borrow at much less favourable rates. While the current cost of debt is £30 billion for the time being, this near doubling would place the interest costs at almost twice the amount of the Ministry of Defence’s annual budget.

The cost of the debt itself is due to interest payments called coupons on bonds issued by the Government. These ‘gilts’ are sold through the The Treasury’s Debt Management Office in order to raise capital. Foreign nations and other large funds purchase the gilts and earn interest payments that are paid out twice a year.