Primary

Public sector net debt reached 97.2% of GDP at end of December 2024, the highest level since the early 1960s. The deficit in 2024-25 is projected at £137.3bn (5% of GDP), the fourth highest among advanced economies. Source: ONS Public Sector Finances December 2024, OBR Economic and Fiscal Outlook October 2024.

Secondary

Debt interest payments are forecast at £105.2bn in 2024-25 (3.7% of GDP or 8.3% of total public spending), rising to £126bn by 2025-26. This represents the highest debt servicing costs since 1950, driven by inflation-linked gilts (25% of debt) and rising interest rates. Source: OBR forecasts, House of Commons Library briefings.

Context

The UK's 2024 deficit of 5.7% of GDP is three times the advanced economy average of 1.8%. Between 2019-2024, UK government debt rose 18 percentage points versus only 3 points on average for advanced economies. Tax burden is forecast to reach 38.3% of GDP by 2027-28, the highest since records began in 1948, compared to OECD average of 35.8%.

The High Debt-High Interest Rate Trap

With debt at 97% of GDP, the UK is acutely vulnerable to interest rate movements. A 1 percentage point increase in gilt rates raises debt interest by £12bn by end of forecast period. A 1 percentage point rise in RPI inflation increases costs by £5.9bn due to 25% of debt being inflation-linked. Higher debt servicing crowds out productive spending - £105bn in debt interest equals 60% of the entire education budget. This creates a vicious cycle: high debt forces austerity, austerity damages growth, weak growth disappoints tax revenues, requiring more borrowing.

The Low Growth-Low Revenue Doom Loop

15 years of productivity stagnation averaging 0.5% versus historic 2% rates has created a structural fiscal gap. OBR downgraded trend productivity growth by 0.3 percentage points in 2025, costing £14bn in borrowing by 2029-30. Low productivity means stagnant wages, which means disappointing income tax and NI revenues. GDP growth of just 1% in 2025 versus 1.5% projected means fiscal arithmetic constantly deteriorates. Each disappointing growth forecast forces either more tax rises or spending cuts, further dampening growth.

Demographics: The Iron Law of Fiscal Math

An aging population creates a perfect fiscal storm: fewer workers (shrinking tax base) supporting more pensioners and healthcare users (rising spending pressures). With dependency ratio falling from 4:1 to 2:1 by 2050, the arithmetic becomes impossible without reform. Triple lock alone costs £15.5bn by 2030 and is politically untouchable. NHS productivity is 18.5% below pre-pandemic levels while demand surges - 86% of over-85s have long-term conditions. Long-term OBR projections show this pushes debt to 270% of GDP by 2070s on current policy settings.

Public Service Productivity Collapse

Total public service productivity in Q3 2024 was 8.4% below pre-pandemic levels, with healthcare productivity 18.5% below Q4 2019. NHS acute sector productivity is 11% lower than pre-pandemic according to NHS England. More money is required just to stand still: the £22.6bn allocated to NHS by 2025-26 is absorbed by inflation, pay settlements from industrial action, population aging, and elective care backlog. Sickness absence is higher than 2019, industrial action continued into 2024, and there's a £11.9bn maintenance backlog with 12,000 reported estate failures stopping clinical services in two years. Throwing money at broken systems without fixing productivity creates fiscal black holes.

Political Short-Termism and Fiscal Fiction

The UK has seen 9 changes to fiscal rules in 16 years, 4 departmental structures for business policy, 11 secretaries of state for business since 2010, and massive policy instability. Chancellors pencil in 'implausibly low spending increases for the future to make fiscal arithmetic balance' (IFS). After generous 2024-25 settlements, the 2025-26+ years assume just 1.3% annual real terms growth - IFS says they'd 'be astonished if these plans are kept to.' This mirrors the 'silly games' of the previous government. Real reform (tax system overhaul, pension reform, productivity investment) is perpetually deferred. The 2022 mini-budget fiasco showed markets punish fiscal irresponsibility, yet structural problems remain unaddressed.

Evidence For Reform

• ✓Fiscal sustainability crisis: OBR long-term projections show on current policies, debt reaches 270% of GDP by early 2070s with borrowing above 20% of GDP. This is mathematically unsustainable with dependency ratio falling from 4:1 to 2:1 by 2050
• ✓Intergenerational inequity: Gap in government spending per child vs pensioner doubled in two decades to £6,345. Child poverty 31% (4.3m children) vs pensioner poverty 17% (2m). Young people face stagnant wages (2024=2008 real terms), unaffordable housing, high student debt, while funding generous pensions they won't receive
• ✓International comparisons: UK has lowest G7 investment since 1990 - 'single most important element in productivity stagnation.' UK 2024 deficit 5.7% of GDP vs 1.8% advanced economy average. Debt rose 18 points 2019-2024 vs 3 points peer average. These outlier numbers prove UK-specific policy failures
• ✓Productivity crisis: 15-year collapse from 2% to 0.5% annual growth. Public service productivity 8.4% below pre-pandemic, NHS 18.5% below. Without fixing productivity, no amount of tax rises or spending cuts can close fiscal gap - you cannot tax or cut your way out of low growth
• ✓Markets demanding credibility: 2022 mini-budget showed bond vigilantes are back. 30-year gilt yields spiked 120bps in 3 days, forcing BoE intervention to save pension funds. Sterling crashed below $1.11. Though current gilt yields are elevated, risk premium tripled after mini-budget. Fiscal credibility is no longer optional

Evidence Against Reform

• ✗Pensioner social contract: Triple lock was introduced because state pension had fallen to just 16% of average earnings by 2010 - pensioner poverty was real. Now at highest share since 1980. Counter: mission accomplished, but politically impossible to end
• ✗Reform timing risk: Multiple crises have created uncertainty. Counter: crises were partly caused by failure to reform earlier - 'wait for stability' has been excuse for 15 years
• ✗Tax burden record high: UK tax-to-GDP reaching 38.3% by 2027-28, highest since 1948. Counter: this argues for spending reform, not against overall fiscal reform
• ✗Public service capacity: Departmental spending composition shifted (pensions/NHS up, everything else down) leaving services fragile. Counter: total spending as % GDP comparable to pre-crisis - it's allocation not amount that's the problem
• ✗Investment rules argument: New PSNFL metric enables £120bn more capital spending. Counter: borrowing for investment when rates are 4.7% (vs 1% a decade ago) is questionable timing

Contested Claims

• ?Whether spending plans are credible: IFS says '1.3% annual real growth after 2025-26 is implausible, we'd be astonished if kept to.' Implies need for £16bn additional top-up by 2028-29 to avoid cuts. Resolution Foundation warns 'Budget in November 2025 likely to reveal significant deterioration.' But government argues efficiency gains and productivity improvements will make numbers work
• ?Triple lock sustainability: OBR says it costs 3x more than originally intended, £15.5bn by 2030. IFS argues 'pensioners deserve better than triple lock' as it creates unpredictability and benefits wealthy pensioners disproportionately. But government committed to keeping it this parliament, and pensioner groups argue it's necessary given historic erosion of state pension value
• ?Whether tax burden is 'too high': At 38.3% of GDP, UK would still be 2.2 points below OECD average, 3.3 points below G7 average, 6.4 points below Western European average. But critics note this is highest UK level ever, and historical comparisons difficult due to different spending structures. Question is whether UK political economy can sustain continental European tax levels
• ?Productivity realism: Government projects NHS 2% productivity growth in 2025-26, with £35bn cumulative savings by 2029-30 from £3.4bn technology investment. But current productivity is 18.5% below pre-pandemic. NHS England argues industrial action and temporary staffing explain low productivity. Critics say structural issues run deeper - Darzi Report identified system flow problems
• ?Brexit attribution: Trade underperformance is real (UK down 1.7% vs G7 up 1.7% since 2019) but causation contested - COVID, energy crisis, and pre-existing productivity collapse confound analysis. OBR's £26bn cost estimate is model-derived counterfactual, not measurement. Same OBR predicted immediate Brexit recession that didn't happen. Question is whether institutional estimates have selection bias toward 'Brexit damage' narrative

“Increases in taxes and borrowing are not costless and the spending plans after 2025-26 are unlikely to survive contact with reality. I would be astonished if these plans are kept to. This looks horribly like a repeat of the silly games played by the last government.”

“The £22bn 'black hole' was obvious to anyone who dared to look. The government is reaping the costs of a long-term failure to grow the economy, together with an ageing population and high borrowing levels, and conditions are worse than necessary due to a series of economic own goals.”

“UK labour productivity growth slowed from an annual average of 1.9% between 1993 and 2008 to 0.4% between 2008 and 2023. The UK has had the lowest level of investment among G7 countries for almost every year since 1990. This is the single most important element in the stagnation of UK productivity.”

“The NHS budget is not being spent where it should be -too great a share is being spent in hospitals, too little in the community, and productivity is too low. Patients do not flow through the system and staff have to spend time dealing with process issues.”

“On current policy settings, demographic pressures of an ageing population and rising costs of healthcare are projected to push borrowing above 20 per cent and debt above 270 per cent of GDP by the early 2070s. There has been a substantial erosion of the UK's capacity to respond to future shocks.”

“Serious internal violence and financial meltdown under Idiocracy leadership -credibility at rock bottom, sustained only by profiteers. Both old parties and Whitehall cracking up simultaneously while MAGA + DOGE kicks open the Overton window.”