As the Autumn Budget draws near, UK government bonds, commonly known as gilts, are once again under the spotlight.
The term gilts may sound confusing, but it has historical significance:
- Originally, government bonds were printed on gilt-edged paper.
- More importantly, the UK government has never defaulted on a gilt payment.
What Are Gilts?
Gilts are essentially government-issued IOUs, used to cover the gap between public spending and tax revenue. They come with a wide range of maturity dates, from less than a year to as far out as 2073. Typically, maturing gilts are repaid by issuing new ones, which has led to a steady increase in total debt.
As of September 2025, the UK’s outstanding gilt debt stood at £2.75 trillion, equivalent to nearly £40,000 per person. While that figure may seem alarming, it’s broadly in line with other developed economies, especially following the 2008 financial crisis and the COVID-19 pandemic.
This Year’s Gilt Sales
In the 2025/26 financial year, the government plans to issue just under £300 billion in gilts, with over half used to refinance existing debt. By mid-September, £155.4 billion had already been sold, keeping the government on track. So far, demand from UK and international institutional investors remains strong, but borrowing comes at a cost.
The Office for Budget Responsibility estimates that interest payments on government debt will reach £111.2 billion this year, around one-third of all income tax receipts. Even if interest rates fall, the impact will be limited in the short term, as most gilts pay fixed interest or are linked to inflation.
Investing in Gilts
Unlike some countries, the UK government doesn’t actively promote gilts to the public. However, individual investors can still access them, either directly or via investment funds. Direct investment has gained popularity, especially since gilt interest is taxable, but capital gains are tax-free.
Investor Reminder
- The value of your investment and any income from it can go down as well as up.
- You may not get back the full amount you invested.
- Tax treatment depends on individual circumstances and may change.
- The Financial Conduct Authority does not regulate tax advice—seek guidance from a qualified adviser.
17th October 2025
