13th May 2026
When people in Caithness talk about taxes, they usually mean income tax, council tax, or VAT on the weekly shop.
But there is another tax, less visible yet just as punishing in the billions swallowed every year by debt interest. It is not levied directly, but it drains the public purse all the same, leaving less for schools, hospitals, ferries, and the fragile services that keep rural Scotland afloat.
The latest figures from the House of Commons Library show the scale of the burden. At the end of March 2026, UK public sector net debt stood at £2.91 trillion — 93.8% of GDP. Servicing that debt cost £110 billion in 2025/26, around 8% of all public spending. That is more than the education budget, and nearly as much as defence and policing combined. In other words, debt interest has become one of the largest single items of government expenditure, a hidden tax that crowds out frontline services.
Why is it rising so sharply?
Two forces are at work. First, the Bank of England’s rate hikes mean new borrowing costs far more than it did in the early 2020s. Second, a quarter of UK gilts are index‑linked, so their payments rise automatically with inflation. The surge in prices after the pandemic and the Ukraine war inflated those payments dramatically. Even as inflation cools, refinancing older debt at today’s rates locks in high costs for years to come.
The effect on public services is direct. Every pound spent on interest is a pound not spent on care, classrooms, or infrastructure. Councils face tighter settlements because central grants are capped by fiscal rules tied to debt sustainability. Health and social care budgets are squeezed, limiting investment in hospitals and staff pay. School repairs and transport upgrades are postponed. Long‑term projects are delayed or scaled back because borrowing has become too expensive. Debt interest acts like a stealth austerity: not through explicit cuts, but through crowding out.
For the Highlands, the consequences are sharper still. Rural areas are often first to lose discretionary spending when budgets tighten. Ferry subsidies, road maintenance, and local service support are easy targets when Westminster and Holyrood must absorb higher debt costs. Caithness households already face rural premiums on fuel and food; now they face the hidden tax of debt interest, paid not at the pump or the till, but in the erosion of local services.
The broader consequence is a government trapped in short‑termism. High debt costs make ministers risk‑averse, reluctant to borrow for long‑term investment. The result is a cycle of patch‑ups and deferred maintenance being visible in potholes, hospital waiting lists, and council retrenchment. For communities at the edge of the map, this fragility is not abstract. It is lived daily.
Debt interest is not just a line in the Treasury’s accounts. It is a hidden tax, levied on every citizen, collected in the form of foregone services. And in Caithness, where resilience depends on every ferry, every clinic, and every council grant, it is a tax we feel more keenly than most.
From the House of Commons Library - 12 May 2026
What are government debt and debt interest?