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Britain’s national debt is on course for £3 trillion this year. Servicing it costs £30 billion a year at 1% interest and £150 billion at 5%, near where long-dated gilts have recently been trading. That’s a number so big it almost becomes meaningless. So, let’s try another way: it’s about the yearly gross pay of nearly four million median full-time workers.
That’s the background to Kenneth Rogoff’s warning that Britain has a better than 50:50 chance of a major debt crisis before 2030. Rogoff is not an excitable commentator. He is a former chief economist of the IMF, a Harvard professor and co-author of one of the gravest studies of sovereign debt crises ever written.
The usual response at this point is to say that Britain is different because it borrows in its own currency, controls its own central bank and can print as many pounds as it needs to meet its obligations – and that is all technically true. But tell that to anyone who has watched their food bill, their energy direct debit or their mortgage payment increase astronomically for three years and ask them whether printing money felt like a solution. It does not create real resources, it does not restore the confidence of the investors who have to be persuaded to keep lending to Britain at reasonable rates, and it does not oblige anyone to hold gilts at yields the Government would prefer.
A country cannot keep piling up debt faster than it is growing the income needed to support it
If markets conclude that monetary sovereignty has quietly become a polite way of describing a country that has chosen to avoid fiscal discipline, the response will not arrive as a formal announcement – it will come through a weakening pound, rising inflation expectations and a gilt market that starts charging Britain considerably more for the privilege of its own complacency.
The usual second defence is that no economist has ever identified a precise debt ratio beyond which a country tips irreversibly into crisis. That, too, is technically right. It doesn’t help that Rogoff’s own earlier work with Carmen Reinhart, suggesting that growth deteriorates sharply once debt crosses 90% of GDP, was heavily challenged after a spreadsheet error emerged.
Yet politicians have drawn entirely the wrong lesson from this. The very fact that there is no obvious line in the sand that lets you know when the position becomes unsustainable is even more dangerous. Pressure simply builds year after year until investors call time and the fiscal adjustment comes swiftly and brutally.
And I would strongly argue that Britain’s current position is already unsustainable. Public sector net debt is around 94% of GDP. Debt interest alone reached £106bn in 2024-25, compared with £39bn in 2019-20. Cheap pandemic-era debt is now maturing into a market where gilt yields have risen by roughly four percentage points from their lows. The Office for Budget Responsibility’s own sensitivity analysis says every sustained one percentage point increase in gilt yields adds about £12bn a year to the interest bill within five years as new issuance reprices.
The lack of growth makes the situation more perilous. GDP is the country’s economic engine room – the total value of goods and services produced across the economy over a year. It is what ultimately funds wages, profits, tax revenues and living standards. GDP per head has barely moved since before the pandemic, and the OBR’s forecasts for future growth remain miserably thin by historic standards.
A country cannot keep piling up debt faster than it is growing the income needed to support it.
So where does that leave the Government? It can hope for growth, tax more or spend less. It likes to talk about the first, but has shown little appetite for the policy trade-offs that actually delivering growth requires. The second is already being pushed to its limit. Britain’s tax burden is heading to levels never previously sustained in peacetime, and further increases risk suppressing the private-sector investment needed to generate growth in the first place. The third option, cutting spending, is the choice this Government, along with much of Westminster, has decided not to discuss honestly.
Welfare alone is forecast to cost £333bn in 2025-26. The triple lock keeps adding pressure to the pensions bill, year after year, regardless of the state of the public finances. Meanwhile the public-sector workforce, payroll and pension promises have all grown through supposedly austere times, without anything like the productivity gains needed to justify the expense.
This is the conversation Westminster avoids because it leads straight to the real question: what is the state for, what can it afford and why does it keep costing more while delivering so little?
Which brings us back to Rogoff’s IMF warning. The danger is not necessarily a 1976-style humiliation, with ministers formally submitting to a rescue package negotiated in Washington. A modern version would probably be more subtle, involving the IMF’s ‘technical support’, harsher surveillance, or even no formal intervention at all. After all, the gilt market can impose discipline long before the IMF arrives – by forcing up borrowing costs, and leaving the Treasury no choice but to impose not just tax rises but also the spending cuts it lacks the courage to choose voluntarily.
The Bank of England is not without blame either. During the pandemic it oversaw an extraordinary monetary expansion, continued quantitative easing after the immediate emergency had passed and then treated the resulting inflationary surge as transitory. Monetarists warned that broad money growth would feed through into prices with a lag. They were ignored. The eventual tightening came late, hitting mortgage holders, raising debt-service costs and leaving taxpayers exposed to enormous losses on the Asset Purchase Facility.
As I’ve argued previously, Britain’s 1976 crisis followed a deeper monetary failure. After Bretton Woods collapsed, the country drifted without a credible nominal anchor. Excessive monetary growth fuelled inflation and destroyed confidence before the IMF arrived.
The lesson is not that history repeats mechanically, but that fiscal weakness and monetary discretion are a dangerous combination. Once markets believe the Bank is being pressured to accommodate the Treasury, credibility drains quickly. That is why Rogoff’s warning matters. Because no matter how far-fetched it may seem, if the fiscal situation doesn’t change soon, and substantially, Rachel Reeves may well find the IMF knocking at the Treasury’s door.
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