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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsThe Institute for Fiscal Studies (IFS) has warned that keeping the UK’s existing budget plans unchanged could leave the government facing service reductions or doubts about its fiscal credibility. In an estimate reported by Reuters on October 11, 2026, the IFS put the tax rises or welfare cuts needed to absorb higher inflation’s effect on public services and meet the defence commitment at £36 billion. That is a think-tank estimate, not an announced budget measure or a final government requirement. The budget is scheduled for October 28.
Why is a “steady as you go” budget under pressure?
The problem is that the spending and revenue assumptions behind the existing plans have come under pressure from several directions. Reuters reported that the IFS sees higher inflation increasing the cost of public services, while the government must also address welfare and debt-interest costs and explain how it will meet its defence-spending commitment.
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The government is also constrained by its pledge not to raise the main tax rates. That leaves difficult choices about how to fund competing priorities without changing those rates. The £36 billion figure is the IFS estimate as Reuters reported it; Reuters did not provide the detailed calculation behind it.
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What could happen if the government leaves the plans unchanged?
Public services could face cuts
The IFS warned that keeping plans unchanged could mean accepting sizeable reductions in the quantity or quality of some public services. As Reuters quoted IFS director Helen Miller: “It would be a choice to tolerate chunky cuts to the quantity or quality of some public services.”
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Investors could question the plan’s credibility
The IFS also said an unchanged approach could be viewed by investors as lacking credibility. Miller told Reuters: “You can’t have hope as your core strategy.” In this context, the warning is that relying on more favourable future conditions without a clear plan may not reassure investors.
What choices does the government face?
The IFS warning describes trade-offs, not a set of announced budget proposals. Broadly, the government could seek additional revenue, reduce welfare spending, change other spending plans, or accept less funding for some services. Each route has consequences, and the reported £36 billion estimate does not specify a complete package or how the burden would be divided.
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- Raise taxes: this could help fund spending, but the government has pledged not to raise the main tax rates.
- Cut welfare spending: this is one of the options in the IFS estimate, but the Reuters report does not identify specific cuts.
- Reduce or reprioritise other spending: this could alter the services delivered or their quality; the report does not set out a detailed plan.
- Delay major decisions: Healey might wait until the 2027 Spending Review, but Reuters did not report that a delay had been decided. The outlook for conflict-related inflation pressure and borrowing costs by then is uncertain.
The choices are linked: the government must account for public-service costs and welfare and debt-interest pressures while explaining how it will meet the defence commitment. Reuters described that commitment as a pledge to spend 3% of GDP on defence.
How much room might there be in the budget?
Fiscal headroom is the amount of space the government is projected to have against its fiscal rules. The figures Reuters reported are forecasts or conditional estimates, not money already available to spend.
| Estimate | Amount and basis |
|---|---|
| IFS conditional estimate | Around £20 billion of headroom in 2029/30 if higher inflation also lifts earnings and income-tax receipts enough to offset much of the added costs. |
| IFS estimate in March | £24 billion of headroom, as cited by Reuters. |
| Analysts’ estimate | £12 billion of headroom, as cited by Reuters. |
The possible revenue offset is not guaranteed. Reuters reported that inflation could raise debt interest and inflation-linked welfare costs, while higher earnings could increase income-tax receipts and offset much of those costs. The around-£20-billion figure depends on that revenue effect.
What do the inflation and growth forecasts show?
In the IFS forecast scenario reported by Reuters, inflation was higher than the official projections made in March. The IFS’s growth estimates also differed from the March estimates in opposite directions for 2026 and 2027.
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| Measure | IFS forecast scenario reported in 2026 | March official projection |
|---|---|---|
| Inflation, 2026 | 3.1% | 2.3% |
| Inflation, 2027 | 3.0% | 2.0% |
| Economic growth, 2026 | 1.4% | 1.1% |
| Economic growth, 2027 | 1.2% | 1.6% |
These are forecasts, not known outcomes. The inflation comparison helps explain the pressure on planned spending; the growth figures show why the outlook cannot be reduced to a single assumption that conditions will improve.
What the warning does—and does not—mean
The IFS warning is about the risk of relying on unchanged plans in the face of changing cost and commitment assumptions. It does not mean the government has announced £36 billion in tax rises or welfare cuts, nor that service cuts or a loss of investor confidence are certain. Reuters also described more than £60 billion in tax increases across the predecessor government’s previous two budgets, but gave no breakdown in this report; that history does not determine what Healey will announce.
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Reuters published its report on October 11, 2026, with an update later that evening, and used an October 12 dateline. The report said the budget was scheduled for October 28. Those dates frame the warning as a forecast ahead of the budget, not a description of settled budget policy.
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