Iran war threatens Healey's Budget plans, think tank warns

An influential think tank has warned Chancellor John Healey that the US-Israel war in Iran poses a significant challenge for his first Budget. The higher-than-expected inflation could impact the government's planned spending on public services, forcing Healey to decide between spending cuts, tax increases, or a combination of both.

The Institute for Fiscal Studies (IFS) urged the government to ensure its spending plans are realistic rather than making unrealistic future cuts to balance the Budget. Healey, speaking ahead of the International Monetary Fund meeting, stated that the consequences of conflict in the Middle East and Europe are affecting countries worldwide, leading to higher prices at the pumps and more expensive mortgages.

The IFS cautioned Healey against making any spending announcements in the October Budget speech that he has no intention of honoring, emphasizing that a steady-as-she-goes Budget is not an option. The IFS projected that the government may need an extra £25bn in 2029-30 to maintain departments' budgets in the face of higher inflation, which would likely require significant tax increases.