The cost of government debt payments in the world’s richest nations hit its highest level since 2007 last year, outstripping the amount spent on defence, police services and housing, a report has found.

Across the 38 members of the Organisation for Economic Co-operation and Development (OECD) debt service costs as a percentage of national income rose to 3.3% in 2024, a steep increase from 2.4% in 2021, forcing governments to devote a larger slice of their tax income to paying lenders.

Most governments are under pressure to increase spending as the costs from the green transition, higher defence spending and ageing populations become more pressing.

Germany’s parliament approved a massive plan to boost infrastructure and support a broader European defence spending push this week. The UK chancellor, Rachel Reeves, is expected to preserve investment spending in her spring statement next week while cutting back day-to-day budgets in response to higher debt servicing costs.

According to the OECD’s Global Debt Report, defence spending of 2.2% among member states fell well below the soaring cost of debt interest, while spending on housing was 0.7% of national income, or gross domestic product (GDP), and 1.7% on the police and public order.

OECD governments raised $15.7tn (£12.1tn) in fresh borrowing in 2024, which amounted to $3tn of extra debt once repayments were included. That took the total amount of OECD government debt to $55tn. The stock of global sovereign debt reached $65.2tn after a small rise in non-OECD government borrowing.

Corporate debt rose to $35tn – ratcheting up the level of total global debt to exceed $100tn – with much of the extra borrowing used by companies to fund share buy-backs and dividend payments to shareholders.

The top five issuers – the US, Japan, France, Italy and the UK – accounted for more than 85% of gross borrowing in OECD countries in 2024 The US alone represented more than two-thirds of the total.

The OECD secretary-general, Mathias Cormann, said a combination of higher costs and higher debt risks was restricting the capacity for future borrowing at a time of significant investment needs, “including to boost growth and productivity, respond to population ageing and address defence needs”.

He said the high cost of borrowing was an incentive for governments to target “productivity enhancing public investment that enhances long-term growth”.

The Paris-based group said debt levels are expected to rise further in 2025, with the average debt-to-GDP ratio in OECD countries reaching 85%, more than 10 percentage points higher than in 2019 and nearly double the 2007 level.

There are also concerns that a large proportion of pandemic-related borrowing will need to be refinanced at higher interest rates over the next two years.

Nearly half of the government debt of OECD countries and emerging markets and about a third of corporate debt will mature by 2027.

Low-income, high-risk countries face the greatest refinancing risks, with more than half of their debt maturing in the next three years and more than 20% of it this year, the organisation said.

As debt becomes more costly, governments and companies need to ensure their borrowing supports long-term growth and productivity, according to the OECD head of capital markets and financial institutions, Serdar Çelik.

“If they do it this way, we are not worried … If they don’t do it this way, if it adds additional, expensive debt, without increasing the productive capacity of the economy, then we will see more difficult times,” Çelik said.