Barclays has warned the Treasury that easing capital rules on gilt holdings could lift demand for UK bonds by £150 billion and trim borrowing costs by £2.5 billion a year. The proposal hinges on exempting unencumbered gilts from banks’ leverage ratios, a move that would deepen the government debt market.

With 10‑year rates recently climbing above 5 percent, Chancellor Rachel Reeves faces a fiscal squeeze. Barclays estimates the tweak would lower those rates by 0.2 percentage points, cutting interest payments by £2.5 billion annually. A spill‑over could ease mortgage costs, tightening the link between gilt yields and home‑loan rates for households and lenders across the financial sector.

Regulators, however, see the proposal as a dangerous loosening of safeguards. Bank of England chief Sam Woods warned that capital relief on sovereign debt could inflate leverage dangerously, citing the 2023 collapse of Silicon Valley Bank. The PRA already considers such a shift “profound and highly risky.”

Barclays’ policy team, led by former Treasury minister Kitty Ussher, argues that exempting only unencumbered gilts would keep banks’ collateral constraints intact while freeing £150 billion for the Treasury. Yet, the Bank of England’s ongoing leverage‑ratio review suggests it will reject the move, preferring stricter rules for domestically focused lenders across the banking sector.