IFS Says Healey's First Budget Paves the Way for a "Brutal" Spending Review

The Institute for Fiscal Studies, a UK think tank that analyses public finances, has said that John Healey's first budget paves the way for a "brutal" spending review next year. According to the Guardian, the institute said the budget did not cover a £28bn shortfall that would be needed to avoid a return to austerity, the term for sustained cuts to public spending.

Healey, who serves as chancellor of the exchequer (the UK's finance minister), unveiled the budget on 28 October 2026. A spending review is the process that sets how much money each government department receives over the coming years. The institute's director, Helen Miller, said that avoiding austerity for departments not protected from cuts could require a £17bn top-up to spending plans for 2030-31. She also said an extra £11bn would be needed to fund a commitment to raise defence spending to 3% of GDP, the total value of goods and services the economy produces in a year.

Healey confirmed 2030 as the target date for reaching that 3% level, according to the institute. The institute said he left plans for overall departmental spending across the rest of the parliament broadly unchanged in cash terms. Miller nonetheless said the plans effectively imply that some public services will face real-terms cuts, meaning cuts after allowing for inflation, in next year's spending review.

The budget also left less room against the government's fiscal rules, the self-imposed limits on borrowing and debt. Healey kept to those rules with £15bn of headroom, the margin by which they are met, down from the £23.6bn buffer left by his predecessor, Rachel Reeves. The institute called the modest reduction in headroom a "reasonable choice" given grim forecasts for household living standards and economic growth.

Healey raised taxes on banks and landlords to fund relief for households squeezed by the energy shock from the Middle East war. Miller warned that next year could bring another round of damaging speculation about tax rises, citing low headroom and a spending review that looks harsh for some departments.

The debate had been anticipated for some time. Before the budget, Reuters reported that Healey was expected to deliver a cautious first budget focused on stability in the bond market, where the government borrows money. The institute had earlier warned that a "steady-as-she-goes" budget was not an option. In its own analysis of the budget, the institute described higher inflation, rising borrowing and potential spending cuts for the economy and households.

The Treasury offered its own summary of the budget under the phrase "Breathing space for today, hope for the future."