Budget will be a 'work of fiction' unless Healey finds £35bn to plug the spending gap, IFS warns

From the Newshound archive · first published 12 October 2026 · last updated 13 October 2026.

The Institute for Fiscal Studies has warned Chancellor John Healey that a £35bn black hole looms ahead of his October 28 Budget, caused by inflation stemming from the Iran war eating into departmental spending power. IFS director Helen Miller said a "steady-as-she-goes" Budget is simply not an option, leaving Healey with a choice between tax rises, benefit cuts or deep reductions to public services. Raising defence expenditure to 3% of national income by 2030 and protecting health budgets from cuts would pile billions more pressure onto departmental settlements already under strain. Miller cautioned that budgeting for cuts Healey has no genuine plan to implement would turn the Budget into a "work of fiction".

Keeping departmental spending stable in real terms could demand a £12bn top-up by the end of the decade.

Higher inflation will lift tax revenues, meaning the erosion of Healey's fiscal headroom is less severe than feared — but not sufficiently so.

Healey must raise 'lots of small taxes' and consider cutting benefits if he refuses to let inflation silently gut public services, Miller said.