IFS warns UK spending pressures could require £35bn in tax rises or benefit cuts

Britain may need about £35 billion in tax increases or benefit cuts to protect departmental budgets and fund higher defence spending, the Institute for Fiscal Studies said in analysis published on October 12.

The estimate describes a possible policy choice for Chancellor John Healey ahead of this month’s Budget. It is not an announced government package. The institute said inflation would reduce what departments can buy with their existing budgets.

Higher borrowing costs are another pressure. The IFS estimated that increased interest rates would add about £10 billion to borrowing in 2029–30, but higher inflation would also raise tax revenues and offset much of that impact.

Fiscal headroom could therefore stand at roughly £20 billion in 2029–30, against £24 billion forecast in March. The institute said the more consequential choice was whether to accept real spending cuts or provide additional funding.

IFS director Helen Miller warned that spending plans must reflect budgets the government is prepared to deliver. Implicit cuts that ministers do not intend to implement would undermine the Budget’s credibility.