In the 2014–15 financial year, the UK government spent £34 billion overall on servicing its debt, which amounted to 4.6% of overall spending. The government also receives interest and dividends on the assets that it holds; taking this into account, spending on net debt interest payments was £28 billion, or 3.8% of total spending.
Figure 1 shows spending on net debt interest payments over time. Since the middle of the twentieth century, spending on net debt interest payments has fluctuated between about 1.5% and 4.5% of national income, with a low point in around 2005–06, just before the financial crisis and recession.
Figure 1. Public sector net debt interest payments as a share of national income (%), 1948–49 to 2020–21 [Download the data]
Figure 2 provides context for the changing spending on debt interest payments over time by showing the size of the net debt stock over time. It includes two different measures of UK government debt: ‘public sector net debt’ (excluding the temporary impact of financial interventions) and ‘national debt’. Public sector net debt is a more comprehensive measure than national debt, but data is only available from 1974.
Figure 2. Debt as a share of national income (%), 1948–49 to 2020–21 [Download the data]
National debt fell from a peak of around 270% of national income immediately after the Second World War, to 218% by 1948-49. Between 1955 and 1970, strong growth in national income resulted in a reduction in the stock of debt as a proportion of national income. From the early 1970s to the mid 1980s, debt was fairly stable. However, the high inflation of the period meant that investors demanded higher nominal interest rates, which increased the cost of government borrowing. This resulted in the increase in debt interest payments seen in Figure 1. Then, during the late 1980s, both inflation and public sector debt fell as a share of the economy, and so spending on net debt interest payments decreased.
In the recession of the early 1990s, government borrowing increased and, in the absence of the high inflation seen in the 1970s, public sector net debt increased as a share of national income. Spending on debt interest payments therefore also increased quickly over that period. However, from 1997, debt interest spending fell dramatically. A major factor contributing to this (in addition to the decline in the debt stock over this period) was a reduction in market expectations of long-run interest rates, which was associated with the independent control of interest rates afforded to the Bank of England in 1997.