Labour debt interest costs have passed £206.4bn since the party took office in July 2024, according to analysis of official public finances data by City AM, as rising gilt yields squeeze the government’s room for manoeuvre on spending and borrowing.
In August alone, Chancellor John Healey faced an £8.8bn debt interest bill. Across the two years since Labour entered office, those monthly payments have accumulated to a sum that comes to roughly double the size of the annual defence budget and accounts for nearly a tenth of total government spending each year.
Labour debt interest costs and the gilt yield surge
The numbers sit against a backdrop of sharply rising borrowing costs in bond markets. According to the Institute for Fiscal Studies, 30-year gilt yields rose by around 100 basis points over the last year, climbing from 4.5% to settle at around 5.5% and peaking at 5.7% in September 2025, their highest level since 1998. A separate analysis by the National Institute of Economic and Social Research found that since the start of 2024, gilt yields have risen by just over 110 basis points, from 3.5% to 4.7%. Both sets of data point to a sustained and broad-based tightening of conditions in the market for UK government debt.
Gilt yields represent the effective interest rate the government pays on its bonds. When they rise, servicing the existing debt pile becomes more expensive, and new borrowing costs more still. With the total debt pile now nearing the £3 trillion mark, a threshold that could be reached as soon as next month, the structural pressure on the public finances is not easing.
Nick Ridpath, research economist at the Institute for Fiscal Studies, said debt interest spending was a ‘worryingly large share of overall government spending and has been pushed up since the OBR’s March forecasts’. He pointed to a combination of forces: ‘Both higher borrowing costs and higher inflation make life harder for a Chancellor who is looking to bring down borrowing and to spend more on government priorities.’
OBR projections and pressure from markets
The Office for Budget Responsibility has projected that debt interest payments will total around £137bn in the financial year between 2030 and 2031. This year, the government is expected to spend just under £110bn on debt interest. Those figures underline why the trajectory of gilt yields matters so directly to day-to-day decisions about public services and investment.
Part of the context is global. A bond rout across major economies has pushed up borrowing costs for many governments, driven in part by the inflationary impact of the Iran war and its effect on oil and gas trade. UK gilt yields have, however, seen larger rises than many comparable countries in recent months, reflecting market concern that disruption to energy supply chains could keep prices and interest rates elevated for longer in Britain.
Recent data also showed that UK borrowing targets were missed, adding to market unease. Economists and traders have criticised successive chancellors for failing to bring public spending down or reduce debt as a share of GDP, which has hovered between 93% and 94% over the last two years. Former Chancellor Rachel Reeves loosened the fiscal rules after Sir Keir Starmer entered Number 10 in mid-2024, allowing more borrowing for infrastructure investment. Healey has kept those same rules in place.
Top accountants at ICAEW, the industry group, urged Healey to ‘stabilise the public finances to avoid market surprises’, arguing that doing so could help reduce debt interest costs over time.
Shadow chancellor Andrew Griffith called the £200bn bill an ‘insane amount’. ‘When you go on a borrowing spree, the interest catches up with you,’ he said. ‘Had Labour run the public finances better much of that could have been saved for defence, healthcare or lower taxes.’
Chief secretary to the Treasury Emma Reynolds said the government was determined to meet its borrowing targets. ‘At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services,’ she said. ‘That is why we are committed to meeting our fiscal rules with a buffer against uncertainty, taking the tough decisions needed to keep the public finances on a sustainable path.’
