Healey Faces £35bn Budget Challenge to Meet Spending Pledges, Says Think Tank
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Healey faces a funding gap of up to £35bn and must set out "credible" spending plans in his first Budget on 28 October, says influential think tank Institute for Fiscal Studies (IFS).
(Image source: Getty Images)
By
Dharshini David, Deputy economics editor
and
Tom Espiner, Business reporter
Published
12 October 2026, 00:04 BST
Updated 31 minutes ago
Chancellor John Healey is facing a challenging task, according to the IFS, which warns of a potential £35bn gap in funding to meet spending pledges.
The think tank states that if the government aims to increase defence spending to 3% of national income by 2030 and boost health spending without reducing other departments' budgets, substantial additional funding of billions of pounds will be required.
Higher inflation, caused by the Iran war, could further impact the government's plans, leading Healey to consider spending cuts, tax increases, or a combination of both, the IFS notes.
The Treasury declined to comment on "rumour and speculation".
The IFS urges the government to ensure its spending plans are realistic, instead of proposing future cuts that may be impossible to deliver.
The government is under pressure to demonstrate financial stability to markets as borrowing costs rise.
The IFS cautions Healey against making spending announcements in the 28 October Budget that he has no intention of implementing.
"A 'steady-as-she-goes' Budget is not an option available to the chancellor," said IFS director Helen Miller. "Choosing to stay the course with the inherited tax and spending plans would mean allowing inflation to blow departments' spending plans off course."
Healey, ahead of the International Monetary Fund meeting this week, stated: "The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home. But Britain and our allies can face up to these challenges together."
He added that his Budget "will build on this approach with fiscal discipline helping to deliver economic resilience" and provide "breathing space" for people.
While Healey doesn't need to address overall spending totals in this Budget, he may choose to leave such decisions until later events, when the economic outlook could be significantly different.
However, the IFS warns that the spending plans inherited from previous Chancellor Rachel Reeves may result in some departments' budgets falling behind inflation in the coming years, casting doubt on the government's credibility.
Previous chancellors have used a similar strategy of outlining unrealistic future spending plans, only to adjust them later, a tactic that may not be feasible this time around.