Iran war threatens Healey's Budget plans, think tank warns
The impact of the Iran war poses significant risks for the government’s spending plans, the Institute for Fiscal Studies says.
Chancellor John Healey faces a significant challenge in his first Budget as the US-Israel war in Iran drives up costs, according to an influential think tank, the Institute for Fiscal Studies (IFS). The conflict could lead to higher inflation, eating into government spending on public services and forcing Healey to choose between cuts, tax increases, or a mix of both.
The IFS urges the government to ensure its spending plans are realistic rather than proposing unrealistic cuts to make the Budget work. Healey, speaking ahead of the International Monetary Fund meeting, emphasized that Britain and its allies must tackle these global challenges together with fiscal discipline to achieve economic resilience.
However, the government is under pressure to prove it has control over finances as borrowing costs rise. The IFS cautioned Healey against making any spending announcements in the Budget speech he has no intention of following, warning that a steady-as-she-goes Budget is not an option. The US-Israel war and Russia's invasion of Ukraine have contributed to higher energy prices, impacting household budgets and adding to the pressure on Healey.
Despite the challenges, the IFS believes the government will meet its fiscal rules by borrowing only for investment projects and reducing debt as a percentage of GDP. However, it expects the government to have a smaller buffer of around £20bn, less than the previous £24bn forecast.
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