Is the UK facing a government debt interest crisis? More than £100 billion a year is now being spent on debt interest, and this is frequently presented as a threat to the government’s finances. In this video, I argue that this misses the real issue.

The UK government cannot involuntarily run out of pounds with which to meet sterling-denominated payments. The important question is therefore not whether the interest can be paid, but who receives that money and what those payments do to the distribution of income and wealth.

Government interest payments become somebody else’s income. They flow to the owners of government bonds and other savings, including pension funds, investment funds, banks and other financial institutions. But because financial wealth is distributed very unevenly in the UK, the benefits of those payments are also unevenly distributed.

I argue that this means higher government interest payments can contribute to wealth inequality. Those who already own substantial financial assets receive additional income, while households with little or no financial wealth receive very little direct benefit.

That raises an important question when politicians simultaneously argue that spending on pensions, health, education and other public services must be constrained. Why is austerity discussed for those services while the scale of interest payments to asset owners receives much less attention? Is this a case of austerity for the poor and interest for the rich?

The real interest crisis, in my view, is therefore not government solvency, or even the cost being paid. It is the distributional impact of transferring such large amounts of income to the owners of financial wealth while claiming that spending elsewhere must be restricted.