IFS warns Healey’s budget risks ignoring £35bn in spending pressures
The Institute for Fiscal Studies has warned that Chancellor John Healey's October budget risks being a "work of fiction" unless he properly addresses £35bn in spending pressures driven by higher inflation from the Middle East conflict. The thinktank is concerned that the government is setting unrealistic spending plans and delaying difficult decisions about tax rises or spending cuts until next year, which could undermine Labour's credibility with financial markets at a time when borrowing costs are already rising.
The IFS estimates that while higher inflation will boost tax revenues by around £4bn in 2029-30, the war-driven surge in debt interest costs and bond market volatility could wipe out half of the £24bn spending buffer left by the previous chancellor Rachel Reeves. The thinktank warns that leaving spending totals unchanged would effectively mean accepting real-term cuts to public services, whilst compensating for inflation and meeting the government's pledge to raise defence spending to 3% of GDP would require significant tax increases or higher borrowing.
- IFS warns budget risks being "work of fiction" without tackling £35bn spending pressures
- Middle East war is driving higher inflation and eroding the government's fiscal buffer
- Chancellor must choose between tax rises, spending cuts or admitting unrealistic plans
New here? Start with this
The UK faces growing spending pressures as inflation, partly driven by global conflicts, rises faster than expected. The Institute for Fiscal Studies, an independent research organisation, has warned that these extra costs could create serious financial difficulties unless the government properly tackles them.
Chancellor John Healey presented the October budget to manage these pressures, but the IFS says he may be underestimating how much additional spending will be needed. The concern is that difficult choices about tax rises or spending cuts are being delayed, with the government hoping to address them later rather than in this budget.
This matters because if the government's spending plans do not match the actual costs, it could damage confidence in how the UK manages its finances and make borrowing more expensive. Without properly accounting for inflation, public services like schools and hospitals would effectively become smaller in practice, whilst the government has also pledged to significantly increase defence spending, making the budget challenge harder.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The IFS is right to demand fiscal honesty. The government cannot simply wish away £35bn in spending pressures from inflation and defence commitments without either raising taxes, increasing borrowing, or accepting stealth cuts to public services. Setting budgets that ignore these real costs, only to make difficult decisions next year, risks undermining market confidence when borrowing costs are already rising and the UK's fiscal credibility matters enormously.
The case against
The government faces genuine uncertainty about inflation trajectories, growth rates, and bond market dynamics that justify caution before locking in permanent spending commitments. Overreacting to worst-case scenarios now could unnecessarily constrain defence investment—a pressing security priority—and damage economic growth prospects. Realistic baselines that allow flexibility as conditions clarify are more prudent than the IFS's more pessimistic forecasting, which may not fully account for revenue growth and efficiency gains.
Read the full article at the source →
Originally published by The Guardian as “IFS: budget will be ‘work of fiction’ without clear plan to cover UK’s £35bn spending pressures”.