IFS: budget will be ‘work of fiction’ without clear plan to cover UK spending pressures
Thinktank’s influential pre-budget report urges key decisions to be made now and not put off until next year John Healey has been warned by Britain’s leading tax and spending exper
By The Guardian
John Healey has been warned that his Budget could become a “work of fiction” unless the Government explains how it will meet up to £35bn in spending pressures.
The warning comes from the Institute for Fiscal Studies (IFS) in a pre-Budget report published ahead of the Chancellor’s statement later this month.
The thinktank said higher-than-expected inflation was eroding the value of spending plans agreed in 2025. Without additional funding, departments could face significant real-terms cuts by the end of the decade.
The IFS estimated that protecting day-to-day and investment budgets from the effects of inflation could require around £25bn by 2030-31.
A further £11bn could be needed if the Government increases defence spending to 3% of gross domestic product by 2030, as it has indicated.
Together, the pressures could leave the Chancellor needing to raise taxes or reduce benefits by around £35bn if he wants to avoid deeper reductions to public services.
The IFS said the conflict in the Middle East had contributed to higher inflation and borrowing costs. However, higher wages and prices could also increase tax receipts, partly offsetting the additional pressure on the public finances.
The report said a Budget that simply maintained existing plans would not provide a credible response to the changed economic outlook. It urged the Government to make key decisions now rather than delay them until next year.
One option identified by the IFS would be to use tax rises that would take effect only if the economy failed to improve by a specified time.
The Chancellor is due to deliver his Budget on 28 October.