Annual Interest Payments Under Different Rate Scenarios (£bn) — 2025/26 to 2035/36
OBR Base Case
+1% Sustained
+2% Sustained
+3% Sustained
+4% Sustained
+5% Sustained
Your Scenario
Annual Interest Bill by Scenario (£bn)
| Year | Base | +1% | +2% | +3% | +4% | +5% |
|---|
📋 Table shows estimated annual interest payments in £bn. The impact builds each year as maturing gilts are refinanced at the higher rate. Bold rows show the selected scenario from the slider above.
Crowding Out — What Gets Squeezed at Your Selected Rate
🚨 "Crowding out" occurs when rising debt interest payments consume an increasing share of government revenue, leaving less for public services. At higher rate scenarios, interest payments alone could exceed the entire education or defence budget — forcing cuts elsewhere or higher taxes.
How the Model Works
📊 Starting Point
OBR baseline: £96bn interest in 2030/31. Total gilt stock ~£2.8tn. Average maturity ~15 years. ~£185bn refinanced per year.
⚙️ The Mechanism
Each year, ~£185bn of old gilts mature at their original (lower) coupon rate and are replaced by new gilts at the higher market rate. The extra interest cost = £185bn × rate rise.
📈 Cumulative Build
Year 1: +£1.85bn extra. Year 2: +£3.7bn. Year 5: +£9.25bn. The annual extra cost keeps growing until all gilts have been refinanced — taking ~15 years for the full stock to roll over.
⚠️ Index-Linked Risk
25% of the gilt stock is index-linked to RPI. If a rate rise is accompanied by higher inflation, the index-linked component would add further costs not shown in this model.
✅ Simplifications
Model assumes a flat yield curve shift, constant debt stock, and no fiscal policy response. In practice, the government would likely respond to higher rates with spending cuts or tax rises to limit borrowing.
Historical Gilt Yield Context — 10-Year Gilt Yield 1990–2026
10-Year Gilt Yield (%)
Bank Rate (%)
⚠️ The 10-year gilt yield hit 4.8% in early 2025 — the highest since 2008. In the 1990s yields routinely exceeded 8–10%. If yields returned to even half their 1990s levels, the interest bill would be catastrophic given today's much higher debt stock. The OBR base case assumes yields remain broadly stable — this page shows what happens if they don't.
Fiscal Tipping Points — When Interest Payments Exceed Key Budgets
Exceeds Education
+2.0%
Rate rise needed to push
interest above £77bn schools budget
interest above £77bn schools budget
Equals NHS Budget
+4.5%
Rate rise needed to push
interest to £192bn NHS level
interest to £192bn NHS level
Exceeds Defence
Already
Interest already exceeds
£54bn defence budget × 2
£54bn defence budget × 2
IMF Intervention Risk
+5%+
Interest above 6% GDP triggers
historic sovereign debt crises
historic sovereign debt crises
✅ The good news: The UK benefits from a longer average gilt maturity (~15 years) than most sovereigns, giving significant buffer time to respond to rate rises before the full cost hits. The Debt Management Office also has the ability to issue more long-dated gilts to lock in rates — though investor demand for very long maturities has fallen since defined benefit pension funds began de-risking.