The sum, equivalent to 5p on the basic rate of income tax, comes from the Treasury’s own forecast for a worst-case scenario.
It is a calculation of the higher interest payments that investors would demand in return for buying British government bonds, the Daily Mail reports.
Spread over five years, a five per cent hike in rates would cost taxpayers more than £112bn extra – £22bn a year.
Meanwhile, sterling faces pressure on foreign exchange markets when trading resumes today.
Already down five per cent this year against a basket of major world currencies, the pound seems certain to fall further after the announcement on Friday by credit rating agency Moody’s that the UK’s debt had been downgraded.
In normal times, interest rates would rise to stem the flow of funds out of sterling.
But if anything the Bank of England is likely to increase its easy-money policies in the months ahead in order to kick-start the economy.
The other major agencies, Standard & Poor’s and Fitch, are expected to follow suit in what is proving a sombre backdrop to George Osborne’s Budget on March 20.
But Moody’s decision was criticised by many. ‘Credit rating agencies tell governments to cut public spending or risk losing their top-notch credit rating,’ said Andrew Smith, chief economist with accountant KPMG.
‘So governments cut back and there is slower growth, which the agencies then cite as the reason for cutting their rating anyway.’
Dhaval Joshi, managing editor at research group BCA, said: ‘We are not the first advanced economy to suffer this ignominy – the United States and France have already been downgraded.
