A steady-as-she-goes Budget is not an option, says IFS

Chancellor John Healey will need to find £36 billion in tax hikes or welfare cuts in his first Budget on 28 October 2026 just to offset the inflation hit to public services and meet a defence spending pledge, according to the Institute for Fiscal Studies, as reported by Reuters on 11 October 2026. The think tank warned that a steady-as-she-goes Budget was not an option, because tax and spending plans set out by Healey's predecessor had been affected by the inflation rise caused by the Iran war.

IFS Director Helen Miller said that not adjusting the plans might not be seen as credible by investors, and that it would be a choice to tolerate chunky cuts to the quantity or quality of some public services. Finding another £36 billion of tax would be equivalent to adding 3 percentage points to the main rate of income tax, the IFS said, illustrating the scale of the gap even though Healey has promised not to raise main tax rates.

Fiscal headroom has halved since March

A separate Reuters poll of economists, reported on 15 October 2026, found that Healey should rebuild his depleted headroom against the fiscal rules to about £15 to £16 billion at this month's Budget to keep bond investors onside. Headroom had halved since March to around £10 to £12 billion from £23.6 billion, although some put it as low as £5 billion.

The Financial Times, cited by Reuters, reported Healey is expected to fund new measures with taxes or cuts, not borrowing, and to drop planned fuel duty rises. A Treasury spokesperson said fiscal discipline underwrites every promise the government makes. This article is market news, not investment advice.