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Story summary
The Institute for Fiscal Studies (IFS) warned Chancellor John Healey of potential tax rises or spending cuts in his first Budget due to higher inflation caused by Donald Trump’s Iran war. The IFS predicts inflation will increase borrowing costs by around £10 billion in 2029–30, reducing the government's fiscal cushion to about £20 billion from a previously forecasted £24 billion. This economic pressure forces Healey to consider higher taxes on banks and property owners or welfare cuts rejected by Labour MPs. The Treasury declined to comment on these predictions but emphasized fiscal discipline in addressing global challenges.
Written for “UK Budget Threats” on 2026-10-12,
grounded in this article and the 1 other(s) covering the same event.
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The article's own words the score was based on. Each is quoted
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Leaning: leans left for article 72874 (medium confidence, 1 verified quote) · logged 2026-10-11
It highlighted the threat of more tax rises, which would almost certainly hit London hardest, or welfare cuts on a scale already rejected by Labour MPs, or Prime Minister Andy Burnham imposing significant cuts to public services which would be a highly surprising move.
asserted
which → highlight → services
Tax increases being mooted for the Budget include higher levies on banks in the City being demanded by union chiefs, ramping up taxes on the better-off, or a bigger Treasury cash grab from property owners.
asserted
increases → moot → owners
The IFS stressed that Donald Trump’s Iran war meant inflation in coming years will be higher than was expected in the spring, when the Office for Budget Responsibility published its most recent comprehensive report on the UK economy.
asserted
Office → stress → economy
Higher inflation will push up the cost of Government borrowing by around £10 billion in 2029–30, the fiscal experts estimated.
asserted
experts → push → 2029–30
But it will also increase tax revenue for the Treasury as wages rise faster than predicted, and probably by more than the increase in the welfare bill.
asserted
wages → increase → bill
So the Government’s “fiscal headroom”, or economic cushion, could be around £20 billion in 2029–30, compared with £24 billion forecast in March.
uncertain
headroom → compare → March
But the IFS warned Government departments are already facing cuts in next year’s Spending Review, if the health budget rise by 2.7% per year in real terms and defence plans remained unchanged.
asserted
plans → warn → terms
Higher than expected inflation worsens this situation, it added, and so to avoid cuts to departments’ budgets may need a combined top-up to day-to-day and investment spending of around £25 billion in 2030–31.
uncertain
avoid → expect → 2030–31
Faced with such a challenging outlook, IFS director Helen Miller warned Mr Healey against a “steady-as-she-goes” Budget.
asserted
she → face → Budget
She stressed: “Choosing to stay the course with the inherited tax and spending plans would mean allowing inflation to blow departments’ spending plans off course.
“It would be a choice to tolerate chunky cuts to the quantity or quality of some public services.
asserted
It → stress → services
In a sign of the dire state of the public finances, Mr Healey has reportedly rejected a plea from Health Secretary Yvette Cooper for more money for a pay rise for nurses and more frontline NHS resources to meet waiting times, instead saying the funds must come from efficiency savings.
uncertain
funds → reject → savings
The Chancellor, who is due to visit Bangkok, Thailand, for the International Monetary Fund’s annual meetings this week, stressed that the Middle East war was “leading to higher prices at the pumps and more expensive mortgages at home”.
asserted
war → visit → home
Ahead of his trip, he said: “I will work with our international partners to keep trade moving, support families and businesses, and make Britain’s economy stronger and more resilient to deliver good growth in every postcode.
asserted
economy → say → postcode
“My Budget will build on this approach with fiscal discipline helping to deliver economic resilience.”
asserted
discipline → build → resilience
But Shadow Chancellor Andrew Griffith said: “Labour raised taxes by £66 billion in its first two Budgets.
“Families cannot afford to be lumbered with even more tax rises at this Budget.
asserted
Families → say → Budget
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