What are government debt and debt interest?

The UK government generally spends more than it receives in taxes and other income, meaning it usually borrows money each year to cover the extra spending. Government debt is the total amount the UK Government owes from past borrowing. Government debt interest is the cost of servicing that debt through regular interest payments.

At the end of March 2026, public sector net debt stood at £2,911 billion, equivalent to 93.8% of annual gross domestic product (GDP), while spending on servicing this debt was among the highest levels in several decades.

How the government borrows

Most borrowing takes place through government bonds called gilts. When investors buy a gilt, they lend money to the government for a fixed period. The government pays interest and repays the original amount when the gilt matures. Gilts are issued by the government’s Debt Management Office (DMO) and are sold for a range of time periods, from a few years to several decades, at different interest rates.

Around three quarters of gilts are conventional gilts, which pay a fixed rate of interest over their lifetime. The remainder are index-linked gilts, where both interest payments and the amount repaid at maturity rise in line with inflation.

Gilts make up about 85% of government debt. Most of the rest consists of savings products issued by National Savings and Investments and short-term Treasury bills.

Who holds government debt?

Major holders of gilts include UK pension funds, insurance companies and banks. Around a third of gilts are held by overseas investors. The Bank of England currently holds around 19% of gilts, down from a peak of about 34% in 2022.

source: DMO, Distribution of gilt holdings (accessed on 24 April 2026)

The Bank of England began purchasing gilts in 2009 through its quantitative easing (QE) programme to support the economy after the global financial crisis. Since 2022 it has been reducing its holdings by selling gilts and by not replacing those that mature.

Measuring government debt

The most widely used measure of government debt is public sector net debt (PSND). This includes most public sector debt, mainly gilts, but subtracts certain assets that can be quickly turned to cash, such as deposits and foreign exchange reserves. PSND is often expressed as a percentage of gross domestic product (GDP) to indicate its size relative to the economy.

There is also a measure known as public sector net debt excluding the Bank of England (PSND ex BoE), sometimes called underlying debt. Introduced in 2016, it removes the Bank of England’s assets and liabilities from the calculation to reduce volatility caused by changes to its balance sheet, some of which relates to the Bank’s QE programme.

At the end of March 2026, PSND was £2,911 billion, equivalent to 93.8% of GDP. It has risen from 35% of GDP in 2007/08. This rise reflects large increases following the global financial crisis and the covid‑19 pandemic. Debt rose sharply during both periods and has been difficult to reduce between shocks.

source: OBR, Public finances databank – April 2026

Government debt interest

Debt interest is the amount the government pays each year for servicing its existing debt. Most payments are made to holders of gilts.

In 2025/26 the government spent around £110 billion on debt interest, equivalent to about 3.6% of GDP and 8.1% of total public spending. This was one of the highest levels seen in the past 50 years.

Source: OBR, Public finances databank – April 2026

Since 2021, debt interest spending has risen sharply. High inflation increased spending on index-linked gilts, while increases in the Bank of England’s (BoE’s) benchmark interest rate increased the effective interest paid on the gilts it holds for QE. Changes in the BoE’s benchmark rate (Bank Rate) immediately affect the cost of servicing gilts held by the BoE.

Recent trends in borrowing costs

The rates at which investors are willing to lend to the government are often described as government borrowing costs.

The government’s borrowing costs are usually inferred from yields (effective interest rates) of gilts being traded in secondary markets. In early May 2026, the implied interest rate was around 5.0% for 10‑year borrowing and 5.7% for 30‑year borrowing. Borrowing costs are higher than in the early 2020s, reflecting increases in interest rates since 2022.

Source: DMO, Historical Average Daily Conventional Gilt Yields (accessed on 12 May 2026)