Core Insights - Rachel Reeves is facing a £28.5 billion increase in debt payments due to rising inflation, which is significantly higher than previous estimates [1][2][5] - Inflation in Britain has reached 4%, double the Bank of England's target, leading to increased scrutiny of the government's decision to link a large portion of its debt to inflation [2][3] - The growing cost of debt interest is expected to create challenges for the Chancellor as she attempts to address a £30 billion shortfall in public finances ahead of the upcoming Budget [7][8] Debt Servicing Costs - Interest payments on inflation-linked bonds are projected to total £28.5 billion this year, which is £2 billion more than earlier estimates and four times the forecasts from two years ago [2][6] - The Office for Budget Responsibility (OBR) had initially predicted a decrease in inflation-linked debt servicing costs to £7 billion for 2025-26, but this forecast has been revised upwards due to persistent inflation [5][6] - If inflation continues to exceed expectations, additional costs of £1.4 billion to £2.3 billion may be incurred, further straining public finances [6][7] Government Response and Criticism - The government's strategy of linking a significant portion of its debt to inflation has drawn criticism, especially as around 25% of UK gilts are tied to price increases compared to only 10% in the US and France [3] - Recent tax increases and minimum wage hikes have been cited as contributing factors to rising inflation, complicating the government's efforts to manage public finances [4][6] - The shadow Chancellor has criticized the current government for soaring borrowing levels, suggesting a loss of control over public finances [9]