Labour Government increases UK Labour Government borrowing to historic highs as national debt interest spirals out of control

Imagine trying to stay afloat financially by constantly borrowing money—just to cover the interest on your previous loans.

That’s essentially what the UK government is doing right now.

A year into Keir Starmer’s Labour government, and Britain’s economy feels more like a maxed-out credit card than a thriving nation.

The promises of borrowing to “invest and grow” have given way to the harsher reality of borrowing just to survive.

A Promise to Invest Turns into a Struggle to Stay Afloat

Labour had pitched itself as a fiscally responsible party during the last election, pledging that any borrowing would fuel long-term growth.

But in practice, most of the borrowed money is now going toward paying off interest on Britain’s already massive national debt—currently around £2.9 trillion.

The government isn’t investing; it’s plugging holes.

The latest forecasts suggest the government will borrow £143 billion this financial year.

Shockingly, over £110 billion of that is just for interest payments.

That leaves very little for actual public services or investment in infrastructure, education, or healthcare.

Feeding the Beast of Public Spending

Of course, Labour didn’t start with a clean slate—the Conservatives left behind significant debt.

But instead of tightening the purse strings, the new government added to the burden by meeting the demands of public sector groups, from railway unions to NHS staff.

That approach has only worsened the fiscal picture.

The government’s borrowing in June alone was nearly £21 billion—£6.6 billion more than the same month last year and the second-worst June for borrowing in modern records, just behind the pandemic-hit June of 2020.

National Insurance Up, Revenues In—But It’s Not Enough

To make matters worse, even when the government does raise more money through taxes, like the increase in employer National Insurance contributions (which brought in an extra £3 billion), it barely makes a dent.

In June, the country earned over £17 billion from NICs—but paid out more than £16 billion in interest payments.

That’s barely breaking even. Taxing employers more to service debt instead of investing in growth is, frankly, a losing game.

A Dangerous Debt Spiral

Britain now finds itself in a dangerous cycle. Debt is nearly 97% of the country’s GDP and rising.

It’s likely to hit 100% before the decade ends.

The annual cost to service that debt is already over £110 billion and projected to grow to £130 billion.

At that point, only the NHS will cost more.

This isn’t sustainable. And despite all the government’s talk about discipline and smart budgeting, they’ve only dug the hole deeper.

Hype Over Growth Doesn’t Match Reality

Labour leaders initially bragged that the UK had the fastest-growing economy in the G7.

But that rosy narrative was built on data from the first quarter of 2025.

Now, the second quarter shows GDP might actually shrink or barely grow at all.

Instead of leading in economic growth, Britain is now leading in borrowing costs, inflation, and the percentage of GDP spent on debt interest. Not the kind of headlines anyone wants.

The Budget That Took the Wind Out of the Economy

Much of this mess can be traced back to Rachel Reeves’s first budget last autumn.

Rather than sparking growth, it stalled the economy.

And there’s more pain ahead—another round of tax hikes, possibly £20 billion or more, is expected this October.

That could deliver a second hit to businesses and growth prospects.

And without growth, borrowing becomes the default—and dangerous—solution.

Investors Are Nervous, and the Markets Are Watching

Investors aren’t ignoring Britain’s shaky position.

Long-term borrowing costs have climbed to 5.5%, a full percentage point higher than when Labour took power.

That’s even more than what was charged during Liz Truss’s short and rocky leadership.

If Reeves needs to borrow more money, it’s going to cost a fortune—and that’s if lenders are even willing to keep buying British debt.

A Whisper of Crisis Echoes from the Past

Some economists are starting to quietly mention 1976—the year the UK had to be rescued by the International Monetary Fund.

It might not happen that dramatically this time, but the trajectory isn’t encouraging.

What’s really frightening is how much of the UK’s debt is held by investors using borrowed money.

If those debts are suddenly called in, they’ll have to sell off British bonds to raise cash, causing interest rates to shoot up even higher.

That’s how financial crises begin—slowly, then suddenly.

People Are Frustrated, and the Mood Is Shifting

It’s not just about economics. People are starting to feel the strain.

Taxes are at historic highs, yet public services are falling apart. The public is paying more and getting less.

Discontent is growing—from migration concerns to a general feeling that the system isn’t working.

MPs left Westminster for summer recess knowing the public mood is sour.

Some are even predicting a “summer of discontent,” although widespread unrest hasn’t taken hold—yet.

Can the Government Handle a Spark?

The truth is, the current government seems unprepared for any real shock.

If tensions boil over, there’s little money or credibility left to contain the fallout.

And that’s what makes the situation truly dangerous.

In short, Britain’s economy isn’t just struggling—it’s teetering.

And unless real changes are made soon, we might be looking back on this period not as a warning—but as the tipping point.