UK debt interest payments could consume nearly half of all government tax revenue by 2075, according to new modelling from the Institute for Public Policy Research (IPPR), a left-leaning think tank. The research suggests that without reform to the fiscal framework, the youngest members of today’s population will spend much of their working lives servicing obligations built up by previous generations.
In its worst-case scenario, the IPPR calculates that debt interest could account for 47 per cent of total government income by 2075. The think tank’s central projection puts the figure at 21.3 per cent of government revenue, roughly a fifth of everything the Treasury collects.
Where UK debt interest payments stand today
Debt interest spending in the current financial year is projected at £110 billion, broadly equivalent to the education budget and close to double defence spending. That works out at just over eight per cent of total public expenditure and around 3.6 per cent of GDP.
Those figures are set to worsen in the near term. According to the Office for Budget Responsibility (OBR), debt interest spending is forecast to rise to £137 billion by 2030-31, with its share of GDP edging up from 3.6 per cent to 3.8 per cent over the same period. The OBR, which serves as the government’s fiscal watchdog, based those projections on current spending and borrowing trajectories.
The IPPR based its own longer-term calculations on OBR data. OBR chiefs have warned that health spending and pensioner spending is set to rise as a proportion of GDP, while productivity growth faces additional pressure from climate-related shocks.
Debt interest costs have risen in line with higher UK gilt yields, which have spiked partly on concerns about looser fiscal policies and the difficulty of reining in borrowing through tax rises or limits on public spending.
The cost of delay
The long-run picture is starker still. Reuters has reported OBR analysis showing that keeping public debt at around its current level of 95 per cent of economic output over the long run would require the government to permanently improve the primary balance by 3.8 per cent of GDP in the 2031-32 financial year. Waiting until the 2050s to act would push that requirement to 8 per cent of GDP, a figure close to the entire health budget.
Those numbers underline the IPPR’s central argument: that delay compounds the problem, shifting an ever-larger burden onto younger cohorts. IPPR economists warned that the youngest members of Generation Z and those born into Generation Beta, between 2025 and 2039, would be most severely affected if no structural changes are made.
A new fiscal framework for debt servicing
The IPPR’s report calls for a revised approach to fiscal rules once the government has consistently met its existing targets. William Ellis, a senior economist at IPPR and co-author of the report, said policymakers should only revisit the framework ‘from a position of strength’ after demonstrating that plans for the current budget and the level of public debt remained credible.
The current fiscal rules, designed under former Chancellor Rachel Reeves, require that tax receipts match or exceed the current budget in the third year of a rolling forecast period, and that public sector net financial liabilities fall as a share of GDP over the same horizon.
A reformed framework, according to the IPPR, would distinguish between borrowing for long-term investments that raise productivity and borrowing that ‘merely adds to liabilities’. It would also incorporate a dashboard covering short, medium and long-term financial data, and factor in the ‘long-term benefits’ of health measures, industrial policy and net zero action.
Critically, the think tank proposes a new backstop: debt servicing costs as a share of total expenditure should not exceed 15 per cent. If that threshold were breached, it would trigger automatic action, shifting the focus away from fiscal headroom as the primary metric watched by Treasury officials.
‘A reformed framework should make the trade-offs between short term investment and addressing long term problems visible,’ Ellis said. ‘Fiscal plans should be held to account on the debt servicing ratio, supported by a dashboard of indicators, and underpinned by a long-term strategy.’
The proposal echoes views expressed by Louise Haigh, chancellor of the duchy of Lancaster, who has criticised the OBR’s ‘unaccountable orthodoxy’ for focusing only on the short-term impacts of growth measures while ignoring longer fiscal horizons. The OBR’s own long-run projections, which form the empirical basis for much of this debate, are set out in its economic and fiscal outlooks.
The OBR forecast that debt interest will reach £137 billion by 2030-31 gives the Treasury a concrete near-term milestone against which any new fiscal framework would need to be tested before 2031-32 tightening decisions fall due.
