Taxpayers will stump up more than £850billion in just six years to pay the interest on Britain’s towering debt pile.

With the UK facing the highest borrowing costs in the G7, the Office for Budget Responsibility (OBR) said the interest bill will hit £123.9billion this year alone.

That is £14.5billion more than expected seven months ago - and is eating up cash that could go on better public services or be used to lower taxes.

The cost of servicing the national debt – which already stands at a record £3trillion – is due to reach £160billion in 2031-32.

By that point, the debt pile is forecast to have reached almost £3.7trillion, up more than ten-fold since the turn of the century when it was £350billion, and well on the way to £4trillion.

The OBR report showed the debt interest bill will total £854billion between this year and 2031-32 – some £70billion more than anticipated in March.

How debt interest hits public services and taxes

The surge in interest payments is a major headache for the Chancellor as it leaves him short of cash to fund other areas such as defence and health.

That forced him in to yet more tax hikes in the Budget, including on banks and bookies - and a tax raid on savers and buy-to-let landlords.

Healey also stuck to Rachel Reeves's plan to keep tax thresholds frozen until 2031.

Instead of rising with inflation, income tax thresholds were put on ice by Rishi Sunak as an emergency pandemic measure from 2022. This has since become the deepest of freezes and is costing workers huge sums.

More of their earnings are dragged into tax, as the tax-free personal allowance fails to rise, and further up the scale the impact is even greater as more get pulled into the higher rate 40 per cent tax band and the 45 per cent additional rate band.

It raises huge sums of money for the Chancellor but is seriously damaging to people's standard of living, as pay rises are eaten by inflation.

> Use our frozen income tax calculator to see how much it will cost you

Delivering his Budget, Healey said he wanted to ‘reduce government borrowing so we spend less on debt interest and more on the priorities of the British people’.

Why are borrowing costs so high?

Global borrowing costs have risen sharply since the start of the US-Iran war as investors bet interest rates will have to rise to tame rampant inflation fuelled by the spike in oil and gas prices.

UK bonds have been hit particularly hard amid concerns that Labour is unwilling to take tough choices on spending – and will instead borrow even more to fund their lavish plans.

The yield on ten-year gilts – a key measure of how much it costs the UK government to borrow – hovered around 5.35 per cent as Healey outlined his plans to the House of Commons.

That was close to this month’s 19-year high above 5.5 per cent while the yield on 30-year gilts is around its highest level since 1998.

Matthew Amis, investment director at Aberdeen, said the Chancellor has managed to keep bond investors on side – at least for now.

‘The gilt market wanted dull and they got exactly that,’ he said. ‘Is this a gilt positive budget? Not particularly, but in the context of this year that is good enough.

‘2027 is going to present another fiscal challenge for Chancellor Healey, but the Budget should provide enough to reassure gilt investors going into the final months of 2026.’