IFS warns Healey faces £35bn challenge to meet UK spending plans
Chancellor John Healey faces a £35bn spending challenge to protect public services and meet defence commitments, the Institute for Fiscal Studies warns. The think tank says his 28 October Budget must set out credible plans rather than defer difficult decisions.
theguardian.comIFS: budget will be ‘work of fiction’ without clear plan to cover UK’s £35bn spending pressures
bbc.comHealey faces £35bn Budget challenge to meet spending pledges, says think tank
Pressure to fund spending pledges
Chancellor John Healey needs to address about £35bn in spending pressures to avoid cuts to public services while meeting defence commitments, according to the Institute for Fiscal Studies (IFS). Its pre-Budget report says higher inflation linked to the Middle East war has made existing spending plans harder to deliver.
The IFS said raising defence spending to 3% of national income by 2030 and increasing health spending without squeezing other departments would require billions of pounds in additional funding. Keeping current spending totals would instead mean cuts elsewhere, it warned.
Credibility and borrowing costs
The think tank urged Healey to set out credible plans in his 28 October Budget rather than postpone decisions until next year’s spending review. IFS director Helen Miller said: “Simply pencilling in implicit cuts that he has no intention of delivering would make the budget a work of fiction.”
Higher borrowing costs are also putting pressure on the government’s finances. The IFS estimated that debt interest costs could add £10bn to borrowing in 2029-30, but higher inflation would also boost tax revenues, potentially limiting the reduction in the chancellor’s fiscal headroom to £4bn. It warned that focusing on this buffer would overlook inflation’s impact on public-service budgets.
Difficult choices on taxes and cuts
The IFS said compensating for inflation and funding the defence pledge would require tax rises or benefit cuts of about £35bn. Miller warned that raising large sums through taxation would be difficult given Labour’s manifesto pledge not to increase National Insurance, income tax or VAT—a promise Prime Minister Andy Burnham has said he will maintain.
Speaking ahead of the International Monetary Fund’s annual meeting, Healey said conflicts in the Middle East and Europe were driving higher fuel prices and mortgage costs. He said his Budget would use fiscal discipline to help deliver economic resilience and give people “breathing space”.
