IFS Warns Healey Budget Risks Becoming 'Work of Fiction' Without Plan to Cover £35bn Spending Gap
The Institute for Fiscal Studies has warned Chancellor John Healey that his Budget will be a 'work of fiction' unless he sets out how he will cover £35bn in spending pressures, with higher inflation forcing a choice between topping up funds or imposing deep real-terms cuts to public services.
The Chancellor, John Healey, has been warned by Britain's leading tax and spending experts that his Budget risks becoming a «work of fiction» unless he sets out clear plans to cover £35bn in spending pressures. The Institute for Fiscal Studies said the damage from higher inflation meant Healey would need either to top up funds for current government spending plans or impose deep real-terms cuts by the end of the decade.
The influential pre-budget report from the IFS urged key decisions to be made now rather than put off until next year. The think tank's intervention comes as the war in the Middle East rattles the public finances, adding further uncertainty to an already strained fiscal outlook. The IFS is widely regarded as the most authoritative independent voice on the UK's tax and spending position, and its pre-Budget assessments are closely watched by markets, politicians and the public alike.
At the centre of the warning is a simple arithmetic problem. Inflation has eroded the real value of the spending totals already pencilled in for government departments. If Healey does not increase those totals, the money available for public services will buy less than originally intended. The IFS calculates that covering the gap would require an additional £35bn, a figure that would have to be found through higher taxes, more borrowing, or a combination of both.
The alternative, the think tank warns, is «chunky cuts» to public services. A «steady as she goes Budget» — one that simply rolls forward existing plans without addressing the inflation-driven shortfall — would mean real-terms reductions in day-to-day spending on schools, hospitals, local government and other frontline services. The IFS described such an approach as a «work of fiction» because it would present spending numbers that do not reflect the actual cost of maintaining services at current levels.
The warning places Healey in a difficult political position. The public is already struggling with soaring energy bills and the broader cost of living, and there is little appetite for tax rises. Yet the fiscal headroom available to the Chancellor has been squeezed by higher inflation, weaker growth forecasts and the added pressure of international instability. The war in the Middle East has rattled the public finances further, making the outlook for borrowing costs and economic growth even less predictable.
The IFS report stresses that decisions cannot be deferred. If the Chancellor waits until next year to address the spending pressures, the required adjustment will only grow larger and more painful. By setting out a credible plan now, Healey could provide certainty to departments, investors and households. By avoiding the issue, he risks delivering a Budget that looks reassuring on paper but unravels in practice.
The political stakes are considerable. The Budget is one of the few moments when a Chancellor can shape the national conversation, and the IFS has effectively framed the choice: either find more money for public services or accept that they will be cut in real terms. With inflation still biting and the international backdrop unsettled, Healey's response will define not just his fiscal credibility but the lived reality of public services for years to come.
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