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The Office for Budget Responsibility forecasts that UK debt interest payments will rise to £117 billion in 2027-28, exceeding its £96.5 billion estimate for public sector net borrowing that year. Independent economists warn the interest bill could be higher still, putting pressure on Chancellor John Healey’s fiscal rules ahead of the October 28 Budget.
UK government debt interest is forecast to rise to £117 billion in 2027-28, overtaking the £96.5 billion projected for public sector net borrowing that year, according to the Office for Budget Responsibility (OBR). The figures add pressure on Chancellor John Healey as he prepares his first Budget, with higher debt costs potentially narrowing the room to meet the government’s fiscal rules.
The OBR forecast puts the debt interest bill at £109 billion in 2025-26, rising to £117 billion two years later. The figures concern the cost of servicing existing government debt, rather than the amount the government borrows to cover the gap between its income and spending. The comparison with borrowing highlights how a growing share of public money is committed to interest payments.
Paul Dales, chief UK economist at Capital Economics, called the point a landmark and said it showed interest payments taking a more dominant role in government spending. The report said debt interest accounts for about £8 of every £100 spent by the government, reducing the funds available for other priorities, including public services, defence or tax reductions.
Some forecasters expect the official estimates to understate the bill. Capital Economics forecasts debt interest of £149 billion in 2030-31, compared with the OBR’s £137 billion estimate. It projects a total cost of £682 billion over five years, about £58 billion above the OBR figure. Oxford Economics chief UK economist Andrew Goodwin said the annual interest bill could be £9 billion to £10 billion higher than the official forecast. Those are economists’ estimates, not revised OBR figures.
Debt Costs Narrow Healey’s Budget Choices
The forecasts matter because the government’s debt interest bill competes with other spending for public funds. When a larger share of revenue goes to interest, the Chancellor has less flexibility to fund services, reduce taxes or absorb economic shocks without changing borrowing plans.
The report says Healey’s fiscal rules require borrowing to fall by the end of the forecast period. It also puts his available fiscal headroom at about £12 billion, roughly half its previous level as bond yields have risen. If borrowing costs or other forecasts worsen, the government could face pressure to raise revenue, reduce spending, or find other measures to keep within its rules. The eventual choices depend on the updated forecasts and Budget decisions, neither of which is settled by the current figures.
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Why UK Debt Costs Are Rising
UK borrowing costs rose amid a bond market sell-off. The source report said Britain had become the first G7 economy since the eurozone crisis to see its government borrowing costs top 6 per cent. Bond yields influence the cost of issuing new debt, while inflation and market expectations can also affect payments on debt already outstanding.
About a quarter of UK government debt is index-linked, meaning payments on that portion are tied to inflation. The report describes this structure as a factor behind the country’s comparatively high debt costs. It also points to the economic effects of the Covid pandemic and Russia’s invasion of Ukraine, which drove up energy costs and contributed to inflation and higher interest rates. Economists quoted in the report also cited a lingering market premium following the 2022 mini-Budget under Liz Truss, which unsettled financial markets.
“It’s a landmark no government wants to reach.”
— Paul Dales, chief UK economist at Capital Economics
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Final Forecasts Could Change the Picture
The OBR was updating its forecasts ahead of the Budget and declined to comment in the report. The £117 billion figure is therefore a forecast, not a confirmed final outturn. The scale of any change will depend on updated assumptions, including inflation, interest rates and the path of the economy.
Economists’ warnings about higher costs are projections rather than official revisions. The report links possible additional pressure to the Middle East conflict and its potential effect on inflation and borrowing costs, but does not establish how large that effect will be. It also remains unclear what tax or spending decisions Healey will announce, or whether the government will retain the reported level of fiscal headroom in the OBR’s updated assessment.
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OBR Update and October Budget
The next major milestones are the OBR’s updated economic and fiscal forecasts and Healey’s Budget scheduled for October 28. Those forecasts will provide a new official assessment of debt interest, borrowing and the government’s room under its fiscal rules.
Healey and the Treasury will then need to set out how the Budget’s tax and spending plans align with those rules. Until the OBR publishes its figures and the government announces its measures, the size of any adjustment—and whether it will involve spending cuts, tax rises or another approach—remains unknown.
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Key Questions
How much is the UK expected to pay in debt interest?
The OBR forecast cited in the report puts debt interest at £109 billion in 2025-26, rising to £117 billion in 2027-28.
Why is the interest bill drawing attention before the Budget?
The forecast £117 billion interest bill exceeds the OBR’s £96.5 billion estimate for public sector net borrowing in 2027-28. The rising cost may also reduce the Chancellor’s room to meet fiscal rules while deciding tax and spending plans.
Is the £117 billion figure confirmed spending?
No. It is an OBR forecast, not a final outturn. The OBR was updating its projections before the Budget, so the official estimate may change.
Could debt interest costs be higher than the OBR forecast?
Some economists think so. Capital Economics projects £149 billion in 2030-31, while Oxford Economics estimates payments could be £9 billion to £10 billion higher per year. These are independent forecasts, not confirmed government figures.
When will the next official figures be available?
The OBR is preparing updated forecasts ahead of the October 28 Budget. Those figures should clarify the projected interest bill and the government’s fiscal position.
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