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World at risk of permanently higher taxes as borrowing hits $11.5 trillion

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Countries around the world are borrowing relentlessly at a scale far above pre-pandemic levels, credit ratings agency Standard and Poor’s has warned, raising the risk of permanently higher taxes.

War, energy subsidies, welfare spending and high interest rates are all forcing governments to borrow more as they fail to bring their finances under control.

Economists fear it will force politicians to ramp up taxes across the globe as debt repayments increase in size and the desire for more spending grows.

Nations will borrow $11.5 trillion (£9.1 trillion) in long-term debt this year, S&P forecast.


This is almost as much as the $11.6 trillion borrowed in 2021 at the height of the pandemic, despite lockdowns and the healthcare crisis being firmly behind us.

The borrowing binge threatens to push up taxes around the world.

Jennifer McKeown at Capital Economics, said: “A lot of economies have been heading towards a bigger government where spending and taxes would be higher.”

The US will borrow the most globally this year, selling $4.5 trillion of debt into the markets. China is second, overtaking Japan for the first time with $1.7 trillion.

Britain is also a major borrower, with plans to sell $350bn-worth of debt.

Sustained heavy borrowing risked panic in financial markets as happened in the wake of Liz Truss’s mini-Budget in 2022, Ms McKeown said. That would put pressure on governments to raise taxes to reassure investors.

Taxes could rise “because of this risk that financial markets start to feel concerned that it is self-destructive, interest rates start to rise and you cause an even worse problem with the debt. So there starts to become pressure for either spending to be reined in or taxes to be increased”, she said.

Carsten Brzeski, economist at ING, said booming debts are “an almost natural consequence of the new era of government interventions.”

He said: “It will bring debt sustainability back on markets’ radar screens. The question is not if, only when.

“As a consequence this means that governments will gradually move towards austerity, which indeed can include higher taxes as cutting expenditures will be socially less attractive.”

It comes amid pressure on Chancellor Jeremy Hunt to cut taxes in the upcoming Budget. However, the Institute of Fiscal Studies (IFS) this week warned Mr Hunt had no room to reduce the tax burden and the legacy of Prime Minister Rishi Sunak would be to significantly increase the size of the state.

Frank Gill at S&P Global Ratings said: “The UK has maintained government revenues at a level approximately 3pc higher than pre-pandemic levels, compared to other G7 countries. Spending remains elevated, however, and is expected to stay 4.3pc above pre-pandemic levels this year. “The challenge lies in getting public debt falling, given that UK gross debt is projected to persist around 13pc above pre-pandemic levels.”

Some of this year’s global debt issuance represents refinancing of old loans as bonds mature and need replacing.

However, countries are expected to borrow $3.4 trillion in new money this year, up from $2.6 trillion in 2023 and 50pc above pre-Covid levels.

Karen Vartapetov, who wrote the S&P report, said borrowing was unlikely to fall in the near future.

He said: “Budget deficits in most sovereigns will remain higher than before the pandemic as growth slows and structural spending pressures stay high.

“The list of persistent fiscal items is long, among which are social transfers, tax and spending measures to contain energy and food prices, and elevated defence bills.

“All of these are difficult to contain or roll back, given upcoming elections. Moreover, government interest spending will remain elevated in the foreseeable future.”

High interest rates have added to pressure on public finances, with the cost of debt now at a 10-year high.

Mr Vartapetov said: “In this context, we expect sovereign long-term borrowing to stay well above pre-pandemic levels this year and thereafter.”

Central banks including the US Federal Reserve, the European Central Bank and the Bank of England all increased borrowing costs sharply in a battle to contain inflation.