A Public Debt Reduction Plan for the United Kingdom

Christopher Ulph

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Abstract: In 2025-26 the United Kingdom spent 96.9 billion pounds on central government net debt interest on the Office for National Statistics measure, and 109.7 billion pounds on the Office for Budget Responsibility measure. The OBR forecasts 137.1 billion pounds by 2030-31. Debt interest is the second largest item of public spending and the only one that funds no public service. Three things drive the bill. Index-linked gilts stood at 672.7 billion pounds in uplifted nominal value at 31 March 2026, 23.9 per cent of the portfolio, the highest share in the G7 and about twice the next highest. Central bank reserves, which averaged 664.9 billion pounds in 2025-26, earn Bank Rate, so Bank Rate is now the effective interest rate on roughly a quarter of the national debt. And the Asset Purchase Facility, which returned about 124 billion pounds to the Exchequer while Bank Rate sat below the coupons it held, is now indemnified at an estimated lifetime net cost of 164 billion pounds by the end of 2036. This paper sets out ten measures, models them as a unified plan against the OBR's March 2026 baseline to 2050-51 under five scenarios, states who bears what cost, and drafts the legislation that would be required. Every formula is written out in an appendix and the model is published in full, so the results can be checked rather than taken on trust.

Keywords: public debt; debt interest; gilts; index-linked gilts; central bank reserves; reserve remuneration; quantitative tightening; GDP-linked gilts; fiscal rules; debt management (search for similar items in EconPapers)
JEL-codes: E43 E58 E62 H61 H63 (search for similar items in EconPapers)
Date: 2026-09, Revised 2026-09
Note: DOI: 10.5281/zenodo.22729444
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Persistent link: https://EconPapers.repec.org/RePEc:cut:wpaper:public-debt-interest-reduction-plan

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