Government Debt
Wednesday, 16 September 2026
Contributions
Question
Asked by
Baroness Neville-Rolfe
To ask His Majesty’s Government what plans they have to reduce the £110 billion annual interest bill for servicing Government debt.
The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)
My Lords, this Question about the Government’s interest bill is a really good one: £1 in every £10 of government money is now spent paying interest. There are three elements causing this. One is the overall level of borrowing, and consistent, disciplined fiscal rules that are kept to are, we believe, the right answer. There is also the growth in global interest rates, for example following quantitative easing. We are also living in an extremely uncertain world, particularly in the Persian Gulf. The third element is the premium that the UK now pays over the G7 average—a premium that has been apparent since September 2022. Again, the best remedy for that is sustained fiscal discipline, including respecting the independence of the Bank of England in particular and, of course, the Office for Budget Responsibility.
Baroness Neville-Rolfe (Con)
My Lords, as most of us agreed in my noble friend Lord Bridges of Headley’s debate last week, we need to be honest about the trade-offs that we face, given the sheer scale of our national debt and the moron premium on our gilts, which the Minister mentioned. I believe that the only way to avoid a financial crisis is to reduce spending. Does the Minister agree?
Lord Pitt-Watson (Lab)
Overall fiscal discipline is the central question. Discipline is really important. The noble Baroness mentioned the moron premium. I do not know whether all noble Lords understand what that term refers to: it was a slight by an economist describing the behaviour of the team responsible for the September 2022 mini-Budget. To give a sense of the cost, it is £15 billion a year. I think we have learned lessons from that. When I spoke in the debate last week, speakers from across the House agreed that fiscal discipline, independent oversight and not moving the goalposts were critical. The balance of spending on tax might be something on which we disagree, but on fiscal discipline we agree entirely.
Baroness Kramer (LD)
My Lords, under the 2026-27 Treasury remit to the Debt Management Office, index-linked gilt issuances will account for 9.3% of total new gilt issuances. Why was this decision made when a quarter of UK gilts are already index-linked well above the international norms, when we are in a period of inflation and rising interest rates, and when defined benefit plans—the schemes which had a hedging rather than a speculative use for index-linking—are rapidly disappearing? Does this make any sense?
Lord Pitt-Watson (Lab)
The Debt Management Office is part of the Bank of England. I would be more than happy to write to it, or the noble Baroness herself might wish to write for the answer to her question.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, are the Government going to join the defence, security and resilience bank to enable us to borrow money at lower interest rates for defence spending?
Lord Pitt-Watson (Lab)
Let me write to my noble friend to make sure that my reply is accurate. However, I believe that matter is under discussion.
Lord Londesborough (CB)
My Lords, is not the real problem here our chronic dependency on borrowing? Debts have tripled over the past 20 years in spite of our fiscal rules. Has the Minister found the time to read the insightful report of the Economic Affairs Committee on our fiscal architecture—45 pages, 22 sparkling recommendations and available in all good print offices? It poses the key question: “Is our fiscal framework fit for purpose?”, to which the answer, in brief, is “No, it’s not”. How much does that concern the Minister?
Lord Pitt-Watson (Lab)
I have read that document. I point out that, in 2025-26, our borrowing will be the lowest for six years and for the first time since 2004 we are projected to borrow less than the OECD average. As regards external evaluation of the fiscal rules, I will read from the IMF’s 2025 Article IV report, which said that “the plans that have been put forward by the UK Treasury strike a good balance between providing favorable conditions for growth, and the emphasis on public investment is welcome in that regard and safeguarding fiscal sustainability”.
Lord Redwood (Con)
My Lords, since September 2022, there has been a big sales programme of longer-dated bonds by the Bank of England to drive up longer-term interest rates. Can the Minister tell us how much, over the past two years, the Government and Treasury have had to send the Bank of England to cover the enormous losses they have heaped up by selling these bonds at low prices needlessly?
Lord Pitt-Watson (Lab)
I do not have those figures offhand. I could write to the noble Lord but I think they are publicly available.
Lord Barber of Chittlehampton (Lab)
My Lords, generating growth is the key to paying off interest and reducing the debt. The Government are doing good work on that across the economy. I hope that they will not forget public sector productivity as part of generating growth. As a Government, we spend £3.5 billion every day. Is the Minister encouraging the Treasury to focus on getting value for every one of those tax pounds?
Lord Pitt-Watson (Lab)
My noble friend Lord Barber is absolutely correct on this; indeed, he has huge expertise in the area. Too often all of us, from all parties, announce inputs and do not think about outputs. On the question of public sector productivity, I am not even sure that we measure outputs correctly.
The Lord Bishop of Hereford
My Lords, a recent report by the Institute for Public Policy Research projects that debt interest payments will increase from the current 10% of revenue to 20% by 2075. The decisions that we take today about taxation and spending should be taken with regard to our moral obligations to the generation that follows us. What assessment have the Government made of the extent to which today’s debt interest payments transfer the burden of current spending to future generations of taxpayers?
Lord Pitt-Watson (Lab)
There are numbers that can project out for 50 years and which would leave future generations with a potentially very large debt. They are, of course, extremely sensitive figures. The first thing that the Government have to do is to have the fiscal discipline that brings the debt down. As I said, last year we had the lowest borrowing for six years, and for the first time since 2004 we are projected to borrow less than the OECD average. I hope that is at least a start, and we can go on to think about where we go to 2070 as we move forward.
Baroness Altmann (Non-Afl)
My Lords—
Lord Liddle (Lab)
My Lords—
Lord Markham (Con)
My Lords—
Lord Purvis of Tweed (LD)
My Lords—
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
It is the turn of the Lib Dem Benches next.
Lord Purvis of Tweed (LD)
My Lords, in reply to my noble friend’s question about the Debt Management Office, the Minister said that it was part of the Bank of England and that he would write to my noble friend, which I am grateful for. To help him draft the letter, might he quote from the DMO website, which says under “Who we are”: “In institutional terms, the DMO is legally and constitutionally part of HM Treasury … The Chancellor of the Exchequer determines the policy and financial framework within which the DMO operates”. Will that assist the Minister in the drafting of his letter to my noble friend?
Lord Pitt-Watson (Lab)
I apologise if I have made an error. If the noble Lord could send me those paragraphs, I would find that very helpful. As he knows, he is talking to a rookie Minister here, and I apologise.
Source: UK Parliament Hansard API. Debate ID: 5408631.