Politics · United Kingdom · 3 hrs ago
Iran war price rises complicate Healey’s first Budget, IFS warns
Chancellor John Healey is preparing his first UK Budget, due on 28 October.
The Institute for Fiscal Studies says higher prices linked to the US-Israel war in Iran and Russia’s invasion of Ukraine could make his plans harder to deliver.
Rising energy costs have pushed up prices for households and businesses, while higher inflation can reduce the value of government departments’ budgets.
The IFS says the government may need to find an extra £25bn in 2029-30 to maintain those budgets, before any increase in defence spending.
Healey may have to choose between cuts, tax rises or a mix of both.
The IFS estimates that the government could still meet its fiscal rules, but with a smaller financial buffer of about £20bn.
Forecasts remain unusually uncertain, and the Office for Budget Responsibility may reach a different conclusion; the IFS also expects any help for households to be temporary and limited.
The Iran war price spike poses a major challenge for Chancellor John Healey as he prepares his first Budget, the Institute for Fiscal Studies (IFS) has warned.
Higher inflation could reduce the value of public service budgets, forcing the government to consider spending cuts, tax rises or both.
The IFS says the government may need to find an extra £25bn in 2029-30 to maintain departments’ budgets.
It estimates that higher borrowing costs could reduce the government’s fiscal headroom to around £20bn.
Healey says his Budget will combine fiscal discipline with efforts to give people “breathing space”.
- Who
- Chancellor John Healey and the Institute for Fiscal Studies.
- What
- The IFS warns that war-related price rises complicate Healey’s first Budget and may require spending cuts or tax rises.
- When
- Healey is preparing a Budget scheduled for 28 October 2026.
- Where
- The effects include higher prices and borrowing costs in the UK; the article says energy prices have risen around the world.
- Why
- The US-Israel war in Iran and Russia’s invasion of Ukraine have helped drive up energy prices and inflation.
This story does not have two clearly opposing sides.
A 'steady-as-she-goes' Budget is not an option available to the chancellor
Simply pencilling in implicit cuts that he has no intention of delivering would make the Budget a work of fiction
The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home
But Britain and our allies can face up to these challenges together
Healey said global conflicts were contributing to higher prices and more expensive mortgages in the UK.
Healey is due to deliver his first Budget.
- Extra funding
- The IFS says maintaining departments’ budgets may require an extra £25bn in 2029-30.
- Fiscal headroom
- The IFS expects around £20bn of headroom.
- Previous headroom estimate
- The OBR forecast a £24bn buffer at the time of the Spring Statement.
- Budget date
- 28 October 2026
- Borrowing costs
- Analysts expect turbulence in bond markets and higher inflation to add around £10bn to borrowing cost forecasts for 2029-30.
Sources
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