The Institute for Fiscal Studies (IFS) has issued a stark warning regarding the upcoming budget from John Healey, stating it risks being a "work of fiction" unless he outlines a plan to address £35 billion in spending pressures. This caution comes as the ongoing conflict in the Middle East continues to strain public finances.
Key Concerns
The IFS highlighted that the impact of rising inflation means that the Chancellor will need to either increase funding for current government spending plans or implement significant real-terms cuts by the end of the decade. The think tank emphasized that failing to tackle these issues in Healey's budget, scheduled for October 28, could lead to perceptions that Labour is proposing unrealistic spending plans.
Helen Miller, director of the IFS, remarked:
“"Simply pencilling in implicit cuts that he has no intention of delivering would make the budget a work of fiction."
This criticism mirrors previous concerns raised against Jeremy Hunt, the former Conservative chancellor, who faced accusations of unrealistic spending plans before the 2024 general election.
The Green Budget Report
In its influential "green budget" report, the IFS urged Healey to avoid a "steady as she goes" approach that would postpone crucial decisions until next year's spending review. The report stated:
“"If John Healey sets out spending envelopes for public services that he would not be willing to live within, his plan for meeting the fiscal rules will not be credible."
Last week, Andrew Bailey, the governor of the Bank of England, emphasized the need for fiscal policy to be credible and perceived as such by financial markets. In response, a government source commented:
“"Andrew Bailey needs to focus on doing his job."
Implications of Inflation
The IFS warned that the Treasury's assumption that all decisions could be deferred to next year's spending review could undermine Healey's credibility. Miller stated:
