Every month the British government takes in around £100 billion and spends around £113 billion. The difference is borrowed. The people who will repay it are, for the most part, too young to vote — or not yet born.

Most arguments about tax and spending are arguments from ideology, with numbers conscripted to serve a conclusion reached before anyone looked at the data. This article does the opposite. It uses only official sources — the Office for Budget Responsibility, the Office for National Statistics, HM Treasury, HM Revenue and Customs and the Bank of England — and lets the figures tell a story that neither left nor right finds comfortable.

Part One: Where We Are Now

In the 2025-26 financial year, total public sector current receipts came to £1,232 billion. Income tax was the largest source at around £330 billion, followed by National Insurance at £205 billion and VAT at £180 billion. Corporation tax contributed around £100 billion. Those four taxes together account for roughly two-thirds of everything the government raises. But the government also borrowed around £130 billion — money that is not revenue, carries interest, and will have to be repaid by someone.

At around 40% of GDP, the tax burden is the highest it has been since 1982-83. Whatever else is true, it is not true that the problem is a government that refuses to tax.

Figure 1

Where the Money Comes From: UK Government Revenue and Borrowing 2025-26

The government borrows £130 billion a year on top of everything it raises in tax

Source: ONS, Public sector current receipts: Appendix D; Public sector finances

Total Managed Expenditure was £1,360 billion — 44% of GDP, around £113 billion a month. Social protection was the largest area at £333 billion, of which the state pension alone accounted for £146 billion. Health came next at £250 billion. Then came debt interest, at close to £100 billion. That last figure buys nothing. It builds no hospital, trains no soldier, teaches no child. It is the rent on decisions already made.

Figure 2

Where the Money Goes: UK Government Spending 2025-26

Debt interest — in red — now costs more than defence

Source: HM Treasury (PESA), ONS

The gap between receipts and spending — public sector net borrowing — was around £130 billion. In the opening months of 2026-27 it has run harder still. Public sector net debt reached £2,989.9 billion at the end of June 2026 — for practical purposes, £3 trillion — equal to 94.9% of GDP. The ONS notes, month after month, that this is the highest level relative to the economy since the early 1960s.

Britain now spends more servicing its debts than it spends on defence. The interest bill alone is larger than the entire schools budget in England.

Figure 3

The Gap That Has to Be Borrowed: UK Annual Deficit 1990-2026

After each crisis the debt ratchets up and never comes back down

Source: ONS, HM Treasury

Part Two: Who Actually Pays

There is a comfortable story in British politics that the country’s problems could be solved if only “the rich paid their fair share.” The government’s own figures tell the opposite story.

According to HMRC, in 2023-24 the top 1% of taxpayers paid 27% of all income tax. The top 10% paid 59%. The bottom half paid under 10% between them. This concentration has been rising: in 1999-2000 the top 10% paid around 50%; today it is nearly 60%. Thomas Piketty documented the broader pattern in Capital in the Twenty-First Century — when returns on capital outpace growth, wealth and income concentrate at the top. The British tax base has followed that logic precisely.

Capital gains tax tells the same story in a more extreme form. In 2023-24, all of CGT was paid by around 378,000 people. Within that, just 2,000 individuals with gains above £5 million paid about 40% of the entire take. A group smaller than the crowd at a local amateur football match provides four in every ten pounds of a national tax.

Turn the telescope around. When the ONS accounts for the whole system — taxes paid, benefits received, the NHS, schooling, everything — 53% of individuals live in households that receive more from the state than they pay into it. Only the top four income deciles are net contributors. The top tenth pays, on average, more than £65,000 a year in taxes and receives around £14,000 back — a net contribution of over £50,000 each, every year. The entire modern British state rests on the net contributions of roughly the top third of the population.

It is important to be fair about what “net recipient” means. It includes the pensioner who paid National Insurance for forty years. It includes families using the NHS and state schools they will pay for later. This is not a moral indictment; it is the arithmetic of redistribution working as designed. But the arithmetic has a consequence: a state this large can only be financed by a narrow band of high earners, and that band is not captive.

Figure 4

The Load Is Carried by a Few: Income Tax by Percentile

One in ten taxpayers provides nearly two-thirds of income tax revenue

Source: HMRC, Income Tax liabilities statistics 2023-24

When Britain abolished the non-dom tax status in April 2025, the OBR modelled significant departures — roughly a quarter of non-doms with trust structures and around 10% of those without. When a person who pays £250,000 a year in tax departs, it takes several dozen average taxpayers to replace them. The burden does not vanish. It rolls downhill. “Tax the rich” is not wrong because the rich are sacred. It is wrong because there are not enough of them, they already pay most of the bill, and they can leave.

Part Three: How Nations Escape Their Debts

Britain has carried debts this large before, and escaped. The question is how — because the escape routes are closing.

After the First World War, public sector net debt stood at roughly 175% of GDP. According to the Bank of England’s long-run dataset, debt interest swallowed around a quarter of all government revenue during the interwar years. Winston Churchill, as Chancellor, returned Britain to the gold standard in 1925 at the pre-war parity — Keynes called it “the economic consequences of Mr Churchill” — because the government believed only a hard currency could make the war debt manageable. The decision crushed exports, threw miners out of work, and triggered the General Strike of 1926. That is what it looks like when a nation tries to honour a debt it can barely carry.

After the Second World War the debt was larger still: roughly 250% of GDP. Britain escaped through a combination of sustained economic growth, moderate inflation, and — crucially — a baby boom that supplied the young, expanding workforce to generate both. As Niall Ferguson argues in The Cash Nexus, the history of sovereign finance is a history of states borrowing their way out of the consequences of previous borrowing, a treadmill that accelerates until either the runner finds a new source of energy or collapses. (For the full pattern — from Philip II’s serial defaults to Rome’s debasement — see The Debasement.)

By the mid-1980s the trick appeared to have worked. Government spending had roughly doubled as a share of the economy since 1925, to around 41% of GDP, and yet public sector net debt was only 39% — because the economy had grown faster than the debt. A far bigger, more generous state was running on a debt burden less than a quarter the size of 1925’s. That combination — growth outpacing borrowing — is the quiet assumption on which the entire modern welfare state was built.

On the eve of the financial crisis in 2005, debt was just 36% of GDP. Then came two shocks. The financial crisis of 2008 added some 28 percentage points. COVID-19 added a further 14. Debt as a share of GDP more than doubled, from 36% to the 95% of today. After each crisis, the debt never came back down. The ratchet only ever turns one way.

Note the crucial difference between then and now. The debts of 1918 and 1945 were incurred to win wars of national survival — debts a generation could look its children in the eye and defend.

Part Four: Why the Escape Route Is Closed

Figure 6

The Engine That Stalled: UK Fertility Rate 1960-2024

Britain has been below replacement fertility continuously since 1973

Source: ONS, Births in England and Wales; OBR

The post-war escape required a growing, youthful workforce. That condition no longer exists.

The total fertility rate in England and Wales fell to 1.41 children per woman in 2024 — the lowest figure ever recorded. The replacement rate is 2.1. Britain has been below it continuously since 1973. (For the full demographic picture, see The Empty Cradle Bargain.) From 2026, the ONS projects deaths outnumbering births. Natural change turns negative.

The old-age dependency ratio — pensioners relative to working-age people — has held roughly steady at around 30% since the 1970s. The OBR projects it rising above 40% by 2075: from three-and-a-half workers for every pensioner toward two-and-a-half. Between 1945 and 2005, the machine ran forwards — a growing workforce, an expanding economy, a shrinking debt ratio. Reverse the demography and the machine runs backwards.

The standard answer has been migration. But the OBR itself concluded that even in high-migration scenarios, immigration changes the level of debt in a given year but “does not fundamentally change the long-run debt dynamics.” A migrant who arrives at 25 to pay for today’s pensions is themselves 25 years closer to drawing one.

There is one credible variable the projections may understate: productivity growth driven by artificial intelligence. Milton Friedman argued in Capitalism and Freedom that the free market’s capacity for innovation is the only reliable engine of broad-based prosperity. If AI raises productivity growth from the OBR’s assumed 1.5% to 2.5% or 3%, the debt path flattens and the dependency ratio bites less hard. But the history of productivity forecasts is a history of disappointment, and no prudent country bets its solvency on a technology whose effects have not yet appeared in the statistics. (For the full case, see The Robot Bargain.)

Part Five: The Reckoning

Figure 5

A Century of Debt — and Where It Leads

UK public sector net debt as % of GDP, with OBR 50-year projection

Source: ONS, Bank of England, OBR Fiscal Risks & Sustainability 2026

Every two years the OBR publishes a Fiscal Risks and Sustainability report projecting the public finances over fifty years. Its July 2026 edition deserves quoting plainly.

On current policy, debt rises from 95% of GDP to roughly 300% by the mid-2070s. The cause is not waste or fraud — rounding errors in a £1.3 trillion budget — but demography colliding with three specific promises. Health spending is projected to rise from around 8% of GDP to 13%. The state pension rises from around 5% to around 9%, driven largely by the triple lock — the guarantee that pensions rise each year by the highest of inflation, earnings, or 2.5%. The OBR estimates the triple lock costs some 2 percentage points of GDP more than simply linking pensions to earnings. That is a policy choice, not a law of nature, made by today’s voters at the expense of tomorrow’s taxpayers.

Those are the projections. Here is what they mean in practice.

Figure 7

The Interest Trap: What Rising Debt Costs Each Year

At 300% of GDP, annual interest alone exceeds the entire NHS budget

Source: OBR Fiscal Risks & Sustainability 2026; author calculation at 3.5% average gilt yield

Today, with debt at 95% of GDP, the annual interest bill is close to £100 billion. The average yield on outstanding gilts is roughly 3.5%. Scale the debt to 200% of GDP and the interest bill rises to around £220 billion. At the OBR’s projected 300%, debt of roughly £9.5 trillion would cost around £330 billion a year in interest — more than the current NHS budget, more than the state pension, more than any single function of government.

Every pound spent on interest is a pound that does not hire a nurse, equip a soldier, or repair a road. At 12% of GDP on interest — the OBR’s own estimate — the state becomes primarily a debt-servicing operation that also happens to run some public services on the side.

Could the debt be repaid? History offers only three routes from a burden this size: default, inflation, or a growth miracle powered by a baby boom. Britain defaulted on neither its Napoleonic nor its Second World War debts, but those were inflated away and outgrown by a young workforce. The demographic conditions for that escape no longer exist. There will be no baby boom. Inflation high enough to erode £9.5 trillion would destroy the savings of the same pensioners the borrowing was meant to protect. And outright default — while rare for a country that borrows in its own currency — carries a different name when it arrives uninvited. It is called a gilt strike, and Britain has already seen a two-day preview.

In September 2022, a poorly telegraphed mini-budget spooked the gilt market. Within 48 hours, yields spiked so violently that pension funds faced margin calls, the Bank of England was forced into emergency bond purchases, and the Chancellor and then the Prime Minister were removed. The underlying fiscal position was far stronger than the one the OBR now projects for the 2040s. It was not a crisis. It was a fire alarm.

Part Six: The Difficult Decisions

Figure 8

The Shrinking State: Where the Money Goes as Debt Rises

Interest crowds out everything else — by 2075, the discretionary state is halved

Source: OBR Fiscal Risks & Sustainability 2026; author projections

If the trajectory is unsustainable — and the OBR says in plain words that it is — then it will not be sustained. The only question is whether to change course deliberately, while we still can, or to have the change imposed by a bond market that one day decides Britain’s promises are no longer credible.

There is an old principle in British fiscal policy, the “golden rule”: borrow only to invest, pay for day-to-day spending from taxation. Borrowing to build a railway or a power station is defensible, because the asset serves the future generation that repays the debt. Borrowing to fund this year’s pensions, this year’s salaries, this year’s running costs is not investment. It is consumption charged to a credit card that our children will inherit. Britain borrows overwhelmingly for the second purpose.

Deliberate change means confronting things that are, at present, close to unsayable. It means asking whether the triple lock can survive when there are ever fewer workers per pensioner. Whether the retirement age must rise faster as longevity rises. Whether a health service designed for the demography of 1948 can be financed unreformed through the demography of 2075. It means protecting the narrow base of high earners who already fund most of the state, rather than squeezing them until they emigrate.

None of this is comfortable. All of it is easier now than it will be later, because the arithmetic only worsens with delay.

Conclusion

In 1776 the American colonists coined a phrase for a system in which people are taxed by a government they had no part in electing: taxation without representation. Britain has built something quieter but structurally identical. The people who benefit from today’s spending — the pensioner drawing a triple-locked pension, the voter enjoying public services not fully covered by current taxation — are, disproportionately, today’s electorate. The people who will service the £3 trillion, and the compound interest on it, are tomorrow’s workers, who had no vote on any of it.

The colonists went to war over the principle. We are merely sending the invoice to the nursery.

The figures in this article are drawn from the Office for National Statistics, the Office for Budget Responsibility, HM Treasury, HM Revenue and Customs, the Department for Work and Pensions, the Bank of England and the House of Commons Library. Where estimates are contested — as with the fiscal impact of migration, or the scale of high-earner departures — the range and the uncertainty have been stated rather than hidden. The argument is not that any one number is beyond dispute. It is that the direction of every number points the same way.

Sources