IFS Says Chancellor Healey Needs £35bn to Meet Spending Pledges

Chancellor John Healey needs to find roughly £35bn to meet the government's spending promises on defence and health without cutting other departments, the Institute for Fiscal Studies (IFS) estimated ahead of the Oct. 28 Budget, according to BBC News.

The think tank reported that the government will need a "top-up" of billions of pounds if ministers intend to raise defence spending to 3% of national income by 2030 while also increasing health spending and sparing other departments from cuts, BBC News reported. The Treasury declined to comment.

How did the IFS arrive at the £35bn estimate?

IFS director Helen Miller told BBC Radio 4's Today programme that Healey inherited departmental spending plans in which growth was already set to slow in coming years, a trajectory that "already looked likely" to force cuts even before other pressures emerged, according to BBC News. Miller said the war in the Middle East has since pushed inflation higher, tightening those existing spending plans further. Combined with a pledge to lift defence spending to 3% of national income, Miller said the shortfall facing other services could run to "something like £35bn" if the chancellor tries to fund both commitments inside current spending totals, BBC News reported.

The IFS did not publish a confidence interval or margin of error for the £35bn figure in the material reported by BBC News, and the estimate reflects a modeled scenario rather than a single fixed number tied to one data release.

What is driving the funding gap?

Two forces are squeezing the budget simultaneously, per the IFS analysis cited by BBC News. First, inflation linked to the Iran war is eroding the real value of spending totals set under previous plans. Second, the defence-spending target of 3% of GDP by 2030 adds a new, specific commitment on top of plans for rising health spending. Miller said that if the chancellor wants to deliver on defence while leaving health funding intact and avoiding squeezes elsewhere, the arithmetic does not currently work without additional revenue or cuts, BBC News reported.

Miller was explicit about what she called the limits of inaction: "A 'steady-as-she-goes' Budget is not an option available to the chancellor," she said, according to BBC News. She added that sticking with inherited tax and spending plans "would mean allowing inflation to blow departments' spending plans off course," and that "simply pencilling in implicit cuts that he has no intention of delivering would make the Budget a work of fiction."

What choices does Healey have?

The IFS framed the chancellor's options as spending cuts, tax rises, or some combination of the two, BBC News reported. Each path carries political constraints. Labour's manifesto ruled out increases to National Insurance, income tax or VAT on "working people," and Prime Minister Andy Burnham has said he will hold to that pledge, according to BBC News. Miller said that leaves the government with a "tough time" raising revenue through other means: "You'd really have to be scraping around and doing lots of small things to get up to big sums," she told the BBC.

Former chancellor Rachel Reeves had already announced billions of pounds in tax rises in a prior budget cycle, BBC News noted, underscoring that revenue-raising has already been a recurring feature of recent fiscal policy under this government.

What has the government said in response?

Healey, speaking ahead of this week's International Monetary Fund meetings, said in comments reported by BBC News: "The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home. But Britain and our allies can face up to these challenges together." He said his Budget "will build on this approach with fiscal discipline helping to deliver economic resilience" and give people "breathing space," according to BBC News. The Treasury itself declined to comment on the IFS figures.

Figures at a glance

• £35bn: estimated top-up the IFS says Healey needs to meet defence and health pledges without cutting other departments, per BBC News.
• 3%: target share of national income the government wants defence spending to reach by 2030, according to the IFS analysis cited by BBC News.

What to watch before the Budget

• Whether Healey's Oct. 28 statement includes explicit tax measures, spending cuts, or both, as the IFS says a status-quo approach is not viable.
• How the Treasury addresses Labour's manifesto pledge against raising National Insurance, income tax or VAT.
• Whether departmental spending totals for health and defence are adjusted to reflect inflation tied to the Middle East conflict.
• Market reaction on UK borrowing costs, given what BBC News described as growing pressure on the government to show a "tight grip" on finances.

For the full account, including additional context from the IFS and government responses, see BBC News.