IFS warns UK Budget needs a credible plan for £35bn in potential spending pressures
The think tank says inflation and a defence spending ambition could force difficult choices over taxes, benefits and public services. Its £35bn figure is a scenario, not a government plan.
The Institute for Fiscal Studies warned on 12 October that Chancellor John Healey’s forthcoming UK Budget could need a plan for roughly £35bn in tax rises or benefit cuts if he chooses to protect public-service budgets and fund a higher defence spending ambition. The figure is the think tank’s estimate under those assumptions, not an announced government measure; Healey’s Budget is scheduled for 28 October.
The warning shifts attention from how much room the Chancellor has under his fiscal rules to what the government intends to pay for. The IFS says higher inflation is reducing the purchasing power of existing cash budgets. Holding those budgets at their planned amounts would leave some services with less to spend in real terms, potentially affecting the quantity or quality they can provide.
How the IFS arrives at the £35bn figure
The IFS estimates that avoiding cuts to departmental budgets under its assumptions could require about £25bn in extra day-to-day and investment spending in 2030–31. It separately estimates that raising defence spending to 3% of GDP by 2030 would cost £11bn in 2030–31 across those two types of spending. Taken together, those pressures could call for about £35bn in tax rises or benefit cuts if the Chancellor wants to fund both ambitions without reducing other services, the institute says.
That calculation describes a choice, rather than a fixed bill due at this month’s Budget. The government has not, on the evidence available, committed to the precise spending assumptions in the IFS scenario. Nor has it announced a £35bn tax package or benefit reduction. The size of any eventual measures will depend on the spending commitments Healey makes and the economic forecast accompanying them.
The IFS says the Chancellor could instead reduce his ambitions for defence or other public services, or make them conditional on the economy strengthening before next year’s Spending Review. It does not say which course he will take. Substantial extra borrowing is also constrained, in the institute’s assessment, by historically high debt and the cost of servicing it; it argues that significant additions to day-to-day spending should be paid for through tax rises or cuts elsewhere.
Why inflation complicates the Budget
The IFS attributes part of the inflation shock to conflict in the Middle East and its effect on energy prices. Its full report says the shock to the UK economy had not yet been as large as some feared around the Spring Forecast. Even so, higher prices mean that previously announced cash allocations buy less, creating pressure on departments if ministers want to maintain the services those allocations were meant to support.
Inflation does not move every part of the public finances in the same direction. Higher debt interest costs could add roughly £10bn to borrowing in 2029–30, according to the IFS, while stronger tax receipts linked to inflation could offset some of that rise. The eventual balance depends on how price changes pass through the economy and on the Office for Budget Responsibility’s judgements about earnings, employment, migration and health-related benefits.
Under one plausible scenario, the IFS puts the Chancellor’s margin against his fiscal rules at about £20bn in 2029–30, against £24bn forecast in March. It stresses that this is uncertain: its assumptions about earnings alone could move that estimate by roughly £10bn in either direction. That uncertainty is one reason the eventual official forecast matters, but it does not remove the separate question of whether planned departmental budgets are sufficient in real terms.
What Healey must decide before 28 October
IFS director Helen Miller said Healey does not have to publish detailed plans for every department at this Budget. She said he should, however, set overall spending limits that he would genuinely accept. A Budget built on implicit cuts that the government did not intend to make would be a ‘work of fiction’, she warned. Her point concerns the credibility of the totals underlying the Budget, rather than a requirement to settle each department’s allocation now.
The Treasury told the Guardian that Healey was focused on growth, the cost of living and fiscal discipline. It said the OBR would publish an updated forecast alongside the Budget and declined to comment on proposals concerning that forecast before its publication. The forecast and the Chancellor’s decisions were still outstanding in the reporting available for this article, so neither the final spending totals nor any tax or benefit changes can yet be stated as settled policy.
The IFS Green Budget was funded by the Nuffield Foundation and produced in association with Barclays. The institute says Barclays’ economic forecasts underpin its analysis. The report therefore provides a detailed account of the choices facing the Chancellor, while the government’s Budget and the OBR’s forecast will establish the official figures and decisions on 28 October.
Sources and context
- IFS: budget will be ‘work of fiction’ without clear plan to cover UK’s £35bn spending pressuresThe Guardian
- Spending pressures, not fiscal ‘headroom’, are the Chancellor’s key Budget challengeInstitute for Fiscal Studies
- Green Budget 2026: Full reportInstitute for Fiscal Studies
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