IFS Warns Iran War Threatens John Healey’s Budget Plans

What changed

The Institute for Fiscal Studies warned that conflict-driven energy prices and higher borrowing costs are putting Chancellor John Healey’s 28 October Budget plans under strain. It estimates that government borrowing costs in 2029-30 could rise by about £10bn, while protecting departmental budgets from inflation may require another £25bn.

Why it matters

This leaves the government with less room to keep existing promises and still meet its fiscal rules. Inflation can increase tax receipts, but it also shrinks what departments can buy with fixed cash budgets. The likely choices are higher taxes, tighter spending, or both.

The IFS expects the government to retain a fiscal-rule buffer of roughly £20bn, down from the £24bn forecast at the Spring Statement. That is still enough to meet the rules in its view, but it leaves less protection if borrowing costs or prices move again.

Healey’s promise of “breathing space” for households is therefore likely to be temporary and limited. The harder question is whether the Budget contains real spending decisions or paper savings that departments will never deliver. The IFS says its forecasts are exceptionally uncertain, and the Office for Budget Responsibility could reach a materially different conclusion.