UK Public Debt and Deficit - Latest Figures and 2026 Projections

2nd January 2026

As of late 2025, the UK's public sector net debt — the core measure of government debt — stands at around £2.9 trillion, equivalent to about 95 % of GDP.

Forecasts by the independent Office for Budget Responsibility (OBR) project this level to hold broadly steady in 2025-26 and into 2026-27, rising slightly to around 95-96 % of GDP in that period rather than declining sharply. This includes both net debt and broader financial liabilities (which account for other government obligations).

The government is projected to run a budget deficit in 2025-26 of roughly £117-£138 billion (net borrowing), meaning the state will continue spending more than it receives in tax revenue overall. The current budget deficit (which excludes long-term investment spending) is narrower but still present, meaning day-to-day spending isn't yet fully covered by revenues.

Over the medium term, official forecasts suggest that debt as a share of GDP may rise slightly before stabilising, with public sector net debt expected to be around 97 % of GDP by around 2028-29 under current policy, before modestly declining later in the decade as growth outpaces borrowing at the margin.

How Government Spending Is Being Allocated

The UK government's spending remains concentrated on a handful of core areas:

1. Social Security and Welfare: The largest single category of spending, covering state pensions, disability payments, unemployment benefits, and other income supports.
2. Healthcare: Substantial funding goes to the NHS across England, Scotland, Wales, and Northern Ireland, which is a significant and politically sensitive part of the budget.
3. Education: Schools, further and higher education, and related programmes receive significant allocations to support human capital and skills.
4. Defence: Defence spending is rising, with the government confirming plans to increase defence expenditure relative to GDP over coming years, partly in response to international commitments.
5. Debt Interest: With elevated levels of public debt and gilt yields above historical lows, interest on the debt itself now absorbs a meaningful share of public expenditure and competes with frontline services for budget space.

Taken together, these priorities reflect both ongoing demographic pressures (for health and pensions) and strategic policy choices (e.g., defence and security). Other areas — transport, housing, environment, justice, and science/innovation — receive smaller shares but are still integral to broader public services and investment.

UK Fiscal Policy in Context

The UK government's approach to fiscal policy in 2025–26 is a mix of short-term management and medium-term targets. The key framework set out in the most recent budgets and OBR forecasts includes:

Bringing the current budget into surplus by March 2030, so that routine spending (excluding capital investment) is matched by revenues.

Ensuring public sector net financial liabilities fall relative to GDP within the same timeframe. These targets serve to anchor expectations about future fiscal discipline.

In the near term, fiscal policy has been shaped by the legacy of the COVID-19 pandemic, energy cost support schemes, and efforts to support households and businesses amid slow growth. While some fiscal tightening is anticipated as tax receipts grow with a larger economy, there has been no immediate large-scale spending contraction, and many commentators expect continued modest deficits for the rest of this decade.

Notably, recent budget announcements include tax increases designed to broaden the tax base and boost revenues, including freezes on income tax thresholds and higher levies on certain incomes — pushing the overall tax burden toward historic highs relative to GDP.

Will Taxes Need to Rise Further?

Whether taxes will need to rise beyond current plans is a live policy debate:

Official forecasts assume some increases or freezes in tax thresholds, which effectively raises revenue without headline rate increases.

Most independent forecasters and institutions like the OECD have warned that without additional revenue or tighter spending control, deficits and debt will remain elevated, and pressure may grow for further tax rises in future fiscal years.
Reuters

In particular, future tax changes could be motivated by long-term pressures like healthcare spending, pensions, and defence commitments — areas that are projected to grow as a share of the economy.

Comparisons with Other Developed Economies

On an international basis, the UK's debt-to-GDP ratio of around 95 % is high but not extreme compared with advanced peers. For example, countries such as Italy and France have historically had higher debt ratios (often exceeding 100 % of GDP), while nations like Germany and some Nordic states operate with relatively lower debt burdens. The United States also has high public debt, though figures vary depending on measures used and timing.

In this context, while the UK is towards the higher end of the developed-economy spectrum, it is not the highest. Its debt position is manageable but leaves less fiscal headroom to respond to shocks like recessions, large interest rate increases, or demographic pressures without policy adjustments.

Summary of 2026 Public Finances

Public sector net debt is around 95 % of GDP and is forecast to remain high through 2026–27.

Annual deficits are large but projected to narrow gradually over the coming years, with the government aiming for a current budget surplus by around 2030.

Major spending areas — welfare, health, education, defence, and debt interest — continue to dominate the budget.

Fiscal policy seeks to balance support for public services with debt control, though future tax increases or additional fiscal measures are likely if spending pressures grow.

Compared with other rich economies, the UK's debt level is elevated but not the highest, reflecting both historical policy choices and post-pandemic borrowing.

Further Reading On The UK Economy

Current Level of UK Government Debt and Its Sustainability

The UK Housing Market and the Economy - A Delicate Balance

The State of the UK Labour Market in 2025 Trends Challenges and the Road Ahead

Inflation in the UK Where We Stand Now and What Comes Next

What are the key risks to the UK economy in the short and long term

Current state of UK economic growth