Chancellor John Healey could be forced to commit to additional government spending, potentially facing a £35bn bill by the end of the decade to combat the impact of inflation, the Institute for Fiscal Studies (IFS) has warned. The think tank stated that this challenge is more significant than concerns over narrowing fiscal headroom.
The IFS indicated that if Healey chooses to increase departmental budgets to avoid real-terms cuts to public services, it could necessitate tax rises or benefit cuts of approximately £35bn. Helen Miller, director of the IFS, emphasised that the Chancellor must establish "overall spending envelopes that he would be genuinely prepared to live within."
The warning from the IFS comes as Chancellor Healey prepares to attend an IMF summit in Bangkok, where he aims to demonstrate the government's commitment to controlling borrowing. This is despite calls for increased spending on cost of living support due to rising costs linked to the Iran war.