By Ahmed Abdelsalam
The Institute for Fiscal Studies (IFS) has warned that Chancellor John Healey's first budget leaves the groundwork for a "brutal" spending review next year after failing to close a £28bn shortfall in the public finances. The thinktank said Healey ducked several major decisions in his low-key Commons statement, leaving departmental spending plans broadly unchanged in cash terms despite rising inflation driven by the Middle East conflict.
Real-terms cuts likely for unprotected services
Helen Miller, director of the IFS, said avoiding a return to austerity for unprotected government departments could require a £17bn top-up to spending plans for 2030-31. An additional £11bn would be needed to meet the commitment to raise defence spending to 3% of GDP. "It effectively implies that some public services will see real-terms cuts in next year's spending review," she said.
Tax rises on banks and landlords fund energy relief
Healey raised taxes on banks and landlords to fund relief for households squeezed by the energy shock emanating from the Middle East war. The chancellor maintained the government's fiscal rules with £15bn of headroom, allowing a hit to the £23.6bn buffer left by his predecessor, Rachel Reeves, as borrowing costs climb.
Deferred decisions create political risk
The IFS described the chancellor's deferral of key decisions to next year's spending review as a "reasonable choice" given grim forecasts for living standards and growth. However, Miller expressed scepticism that the government would be willing to deliver the implied cuts or announce tax increases it has not yet prepared the public for, warning of another season of damaging speculation about tax rises.
