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Debt interest on course to absorb more than a fifth of government revenue by 2074–75, finds IPPR
UK is not on a fiscally sustainable track due to failure to tackle long-term pressures and short-sighted fiscal rules
IPPR says government should carefully review fiscal framework in next parliament

Future generations are on track to see one in every five pounds of government revenue swallowed up by debt interest, according to new analysis by the Institute for Public Policy Research (IPPR).

The report warns this outcome is not just driven by low growth and demographic pressures, but also by financial markets and a fiscal framework focused too strongly on narrow medium-term targets, and not enough on longer-term fiscal risks and opportunities.

New IPPR modelling shows that debt interest could account for 21.3 per cent of government revenue by 2074–75 under the most likely scenario. In the worst case, this share could soar to 47.0 per cent, while under the most positive scenario, it would remain stable at 7.6 per cent.

This would be a heavy burden on those born over the next 15 years, known as ‘Generation Beta’. But gradual reform can avoid these costs piling up over time and keep debt costs sustainable.

A well-targeted package of reform and long-term investment – including action on preventive health, climate resilience and productivity – could significantly improve the outlook, reducing debt interest by 8 percentage points of revenues over the same period, before any tax changes.

IPPR is not calling for a big change in borrowing plans right now, arguing that the UK’s short-term market risks are very real, including high borrowing costs. The authors say with the Iran shock continuing to affect the economy, the risk of even higher borrowing costs means the government should stick to its fiscal rules and only change the borrowing path only for policies that are key for growth or help reduce inflation.

However, the government should begin developing a new fiscal framework in the next parliament, to be introduced from a position of strength once the existing rules have been met. The framework should distinguish between borrowing that builds long-term capacity and borrowing that merely adds to liabilities, enabling governments to balance short-term costs against long-term sustainability. The government could also already outline its long-term fiscal strategy formally, being transparent on how it plans to address neglected long-term risks.

IPPR recommends:

In the next Parliament, developing a new fiscal framework that can assess the long-term fiscal value of today’s policy decisions. This should account not only for upfront costs, but also for the long-term benefits of preventive health measures, industrial policy investments and climate resilience programmes, alongside a clear strategy for reforming revenue-raising.
Publishing a fiscal sustainability dashboard, bringing together indicators across short, medium and long-time horizons, including on borrowing, debt structure, public assets, future spending pressures and investment impacts.
Adopting a debt servicing ratio as backstop metric, so fiscal sustainability is judged by the burden of debt interest on revenues, which is the intuitive measure for both citizens and financial markets. The backstop should require change if the ratio rises above an “adjustment zone” threshold.

William Ellis, senior economist at IPPR, said:

“Our current fiscal framework is not fit for purpose, and blind to the risks that decide long-term sustainability. On the current path, we will see the government paying £1 in every £5 gained by 2074 just to pay our interest costs - but well-targeted reform and investment could nearly halve that burden.

“This is not a call to significantly change the borrowing pathway now. The government should stick to its existing rules, and any reform must come in the next parliament, from a position of strength once those rules have been met.

“A reformed framework should make the trade-offs between short term investment and addressing long term problems visible. Fiscal plans should be held to account on the debt servicing ratio, supported by a dashboard of indicators, and underpinned by a long-term strategy”.

ENDS

William Ellis (senior economist) and Carsten Jung (associate director for economic policy) are available for interview

CONTACT

Liam Evans, head of news and media: 07419 365 334 l.evans@ippr.org

David Wastell, director of news and communications: 07921 403651 d.wastell@ippr.org

NOTES TO EDITORS

The IPPR report will be available for download at: https://www.ippr.org/articles/beyond-headroom
Advance copies of the report are available under embargo on request
Figures are from a bespoke IPPR model of the UK's long-term public finances, built on the OBR's March 2026 forecast, the OBR's Fiscal Risks and Sustainability report (July 2026) and the ONS's 2024-based population projections. The headline measure is the debt servicing ratio – debt interest as a share of government revenue – projected to 2074/75. The 21.3 per cent central figure, and the 47.0 and 7.6 per cent worst and best cases, are the central, adverse and favourable scenarios from 810 model runs varying four long-run drivers: the neutral interest rate, trend productivity growth, net migration and climate damage. The central case assumes a long-run interest rate of 3 per cent, productivity growth of 1.25 per cent a year, net migration of around 230,000 a year and warming held below 3°C, with effective interest rates converging on the long-run rate between 2030 and 2074. The adverse case combines a 4 per cent rate, 0.6 per cent productivity, net migration of 105,000 and high climate damage; the favourable case a 2 per cent rate, 2.3 per cent productivity, net migration of 455,000 and warming below 2°C. The 8 percentage point improvement is the net effect of a package of reform and investment: 2 per cent of GDP a year borrowed to invest adds 3.0 percentage points to the ratio, offset by higher net migration (-3.8), targeted health savings (-1.5), climate savings (-1.7), and the stronger economic returns assumed for well-targeted investment (-4.1), taking the ratio to 13.3 per cent by 2074/75. Projections over a fifty-year horizon are illustrative and highly sensitive to these assumptions. Further detail is in appendix 2 of the report, and available on request.
IPPR (the Institute for Public Policy Research) is the UK’s most influential think tank, with alumni in Downing Street, the cabinet and parliament. We are the practical ideas factory behind many of the current government’s flagship policies, including changes to fiscal rules, the creation of a National Wealth Fund, GB Energy, devolution, and reforms to the NHS. As an independent charity working towards a fairer, greener, and more prosperous society, we have spent almost 40 years creating tangible progressive change - turning bold ideas into common sense realities. www.ippr.org