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The Institute for Fiscal Studies (IFS) says the UK government may need to raise taxes or cut welfare spending to cover the effects of higher-than-forecast inflation on public services and meet its defence commitment. Reuters reported the IFS estimate at £36 billion ahead of the budget scheduled for October 28, 2026. That is an estimate, not an announced measure or a settled government requirement.
Why does the IFS say the budget cannot simply stay unchanged?
The figures underlying the warning are moving: the IFS forecast scenario reported by Reuters put inflation above the official projections made in March. Higher inflation can raise the cost of public services and increase inflation-linked welfare payments. The government also has a defence-spending commitment to explain how it will reach 3% of GDP.
Against those pressures, leaving existing plans untouched could mean accepting substantial reductions in the quantity or quality of some public services. Helen Miller, IFS director, told Reuters: “It would be a choice to tolerate chunky cuts to the quantity or quality of some public services.” She also warned: “You can’t have hope as your core strategy.”
What does the reported £36 billion estimate mean?
Reuters reported the IFS estimate that £36 billion in tax increases or welfare cuts would be needed to offset inflation’s effect on public services and meet the defence pledge. The report does not provide the estimate’s detailed calculation, so it should be read as the IFS’s reported assessment—not as a complete costing or a final budget bill.
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The government is constrained by its pledge not to raise the main tax rates, as well as rising welfare and debt-interest costs. Reuters also noted that the predecessor government raised taxes by more than £60 billion across its previous two budgets; the report does not give a breakdown of those increases.
What do the inflation and growth forecasts show?
The figures below are projections reported by Reuters, not known outcomes. The IFS figures refer to its forecast scenario; the comparison figures are the official projections made in March.
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| Measure | IFS forecast scenario | March official projection |
|---|---|---|
| Average inflation, 2026 | 3.1% | 2.3% |
| Average inflation, 2027 | 3.0% | 2.0% |
| Economic growth, 2026 | 1.4% | 1.1% |
| Economic growth, 2027 | 1.2% | 1.6% |
The growth estimates do not move in the same direction in both years: the IFS scenario is higher than the March projection for 2026 and lower for 2027. Neither set of figures establishes what will actually happen.
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Could higher tax receipts reduce the pressure?
Possibly. Reuters reported that higher earnings associated with inflation could raise income-tax receipts and offset much of the extra costs, including higher debt interest and inflation-linked welfare spending. If that revenue offset materialises, the IFS put fiscal headroom in 2029/30 at around £20 billion. That conditional figure compares with £24 billion in March and an analysts’ estimate of £12 billion cited by Reuters.
Headroom is a forecast, not money already available to spend. The estimate depends on the assumptions about earnings and tax receipts; the offset is not guaranteed.
What choices are on the table before the budget?
Reuters described competing pressures, not a fully specified set of budget packages. The broad choices are:
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- Raise taxes or reduce welfare spending: These are the two routes identified in the reported £36 billion estimate, though the government has pledged not to raise the main tax rates.
- Keep plans unchanged: This could leave public services facing cuts in their quantity or quality, or prompt investors to question the credibility of the government’s fiscal plans.
- Delay major decisions: Healey could leave large changes until a 2027 Spending Review, but Reuters did not report a decision to do so. The outlook would depend in part on whether conflict-related inflation pressure and borrowing costs ease by then.
- Explain the defence commitment: The government must set out how it intends to reach defence spending of 3% of GDP while managing the other fiscal constraints.
What is known—and what remains uncertain?
Reuters published its report on October 11, 2026, with an update later that evening, and gave it an October 12 dateline. It said the budget was scheduled for October 28. The £36 billion figure, the inflation and growth numbers, and the possible fiscal headroom are attributed estimates or forecasts, not announced budget measures. The report does not establish whether every forecast or pledge it describes has since been updated.
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