Key facts
- The IFS warned the UK budget risks being a "work of fiction" without plans to cover £35bn in spending pressures.
- Higher inflation and increased debt interest costs necessitate either increased funding or real-terms cuts to public services.
- The IFS stated that leaving spending totals unchanged would implicitly mean allowing public services to fall in quality or quantity.
- Funding public services and raising defense spending to 3% of GDP by 2030 would require tax rises or benefit cuts of about £35bn.
- The IFS advised against delaying decisions until next year's spending review, urging for credible fiscal plans.
- The Treasury stated the chancellor is focused on fiscal discipline and meeting fiscal rules with a buffer against uncertainty.
Britain's leading tax and spending experts have warned that the upcoming UK budget risks being a "work of fiction" unless Chancellor John Healey sets out clear plans to cover an estimated £35 billion in spending pressures. The Institute for Fiscal Studies (IFS) stated that damage from higher inflation, partly fueled by the war in the Middle East, means the government must either increase funding for its current spending plans or implement deep real-terms cuts by the end of the decade.
The IFS cautioned against delaying crucial decisions until next year's spending review, arguing that a budget that "hopes for the best" rather than plans for the worst would undermine the chancellor's credibility. Helen Miller, director of the IFS, commented that "Simply pencilling in implicit cuts that he has no intention of delivering would make the budget a work of fiction."
This criticism echoes past concerns about unrealistic spending plans. The thinktank highlighted that while higher inflation could boost tax revenue, it would also significantly squeeze public spending power. The choice would be between accepting cuts to the quality or quantity of public services, or finding additional funds through tax rises or benefit cuts, especially if defense spending is increased to 3% of GDP by 2030.
Leading economists have predicted that market volatility stemming from the Middle East conflict could significantly reduce the £24 billion fiscal headroom previously identified. The IFS noted that while debt interest costs might add £10 billion to borrowing in 2029-30, the exchequer could benefit from higher inflation boosting tax revenue, potentially reducing the headroom by only £4 billion. However, the focus remains on the broader impact of inflation on public service funding.
A Treasury spokesperson affirmed the chancellor's focus on boosting business, aiding with the cost of living, and supporting citizens, all while maintaining fiscal discipline and a commitment to the fiscal rules.