IFS: UK may need £35bn in taxes or cuts — The Guardian
The Institute for Fiscal Studies (IFS) has warned that the UK government may need around £35 billion in tax increases or cuts to social benefits. According to the institute, such measures will be needed to offset inflationary pressure and fulfil the plan to increase defence spending to 3% of GDP by 2030, The Guardian reports.
Impact of inflation and defence spending
The IFS noted that higher inflation amid the war in the Middle East is reducing the real value of spending by government departments. The government must either increase funding for existing spending plans or allow a significant real-terms reduction in expenditure by the end of the decade.
According to the institute's analysts, keeping overall spending levels unchanged would mean a decline in the quality or volume of some public services. If defence spending rises within the same total amounts, these cuts will be even greater.
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Budget warning
IFS Director Helen Miller said that building in implicit cuts that the government does not intend to implement would turn the budget into a “work of fiction”. The institute urged Chancellor John Healey to set out realistic funding limits for public services in the October 28 budget, rather than postponing key decisions until the next spending review.
Before the budget, there is also discussion of the headroom for complying with the Labour Party's main fiscal rule — to balance current public spending and revenues in 2029–2030. The IFS calculated that rising debt-servicing costs could add £10 billion to borrowing during this period, although higher inflation will also increase tax revenues. As a result, the headroom for meeting the rule could shrink by £4 billion.
The UK Treasury said that the chancellor is focused on supporting businesses, helping with the cost of living and complying with fiscal rules with a buffer for uncertainty. An updated forecast from the Office for Budget Responsibility is due to be published alongside the budget in October.
