A group of prominent economists has formally advised that leaving the Budget unchanged this month could produce measurable cuts to public services, as sustained inflation continues to erode available funding. The Institute for Fiscal Studies (IFS) concluded that any increase in defence expenditure along the lines ministers have called for would deepen that fiscal pressure further.

The IFS identified persistently elevated inflation — fuelled in part by the conflict in the Middle East — as the principal economic challenge awaiting John Healey in his new role as chancellor, a pressure distinct from the fiscal headroom constraints that had preoccupied his predecessor, Rachel Reeves. Inflation pressures threaten to erode the purchasing power of departmental budgets, placing government bodies at a point where additional funding — potentially running to tens of billions of pounds — or scaled-back provision in certain public services may both need to be weighed.

According to IFS director Helen Miller, Healey's upcoming forecast is expected to show borrowing on a downward path over the coming years, with the fiscal rules remaining on track to be met. Retaining the inherited tax and spending frameworks without adjustment would leave departmental budgets exposed to erosion by inflation over time.

The IFS also called on Healey to set out the spending boundaries he is prepared to operate within, warning that his approach to meeting the fiscal rules without unsettling financial markets would hold up only if underpinned by realistic spending totals — a condition that would otherwise require accepting reductions, potentially substantial ones, to the volume or standard of certain public services, with those reductions deepening further should defence budgets be expanded from within the existing overall envelope.

Absent steep reductions to health spending or a reversal of plans to raise defence budgets, the projected numbers point toward real-terms funding losses across other government departments. According to the IFS, maintaining departmental budgets at their current levels under those fiscal conditions would require additional funding — across both day-to-day operations and capital investment — totalling roughly £25bn by 2030–31.

The IFS further noted that holding spending totals at their current levels would, in practice, amount to a decision to reduce certain budgets, leaving the standard or volume of some public services to deteriorate. Maintaining existing budget levels while also lifting defence expenditure would leave a funding gap of around £35 billion, a shortfall that would need to be bridged through either higher taxes or reductions to benefits.

The think tank also noted that the chancellor's ability to meet the fiscal rules would rest on the spending totals he establishes, warning that if Healey sets out departmental envelopes for public services at levels he would not actually hold to, the underlying plan for fiscal-rule compliance would lack credibility. The IFS cautioned that debt levels remain at historic highs, with interest payments as a proportion of GDP having grown to more than twice their 2019 share, making any substantial expansion of borrowing inadvisable at this point.

Miller pointed out that no requirement exists for the chancellor to present detailed spending plans at the time of the Budget. Transparency about the years of strain ahead for certain public services, she argued, would be a necessary part of any decision to pursue a path of reduced public expenditure.

Healey is due to attend the IMF annual meetings in Bangkok, where he plans to tell counterparts from other major economies that credible frameworks for bringing borrowing under control are needed, while also noting that armed conflict across the Middle East and Europe has pushed up fuel costs and household mortgage rates. He indicated that Britain and its allies are positioned to address those pressures through coordinated action.

Plans to engage international partners on trade continuity, household and business support, and a more resilient national economy — with growth reaching every part of the country — were outlined by the minister. Fiscal discipline forms the stated foundation of the proposed budget, with the aim of strengthening economic resilience. Healey described the outcome as offering relief in the near term alongside a foundation for longer-term optimism.

Shadow Chancellor Andrew Griffith argued that elevated borrowing costs, combined with spending commitments lacking identified funding, had eroded the chancellor's available fiscal space while putting upward pressure on inflation. Across two successive budgets, the government introduced tax increases totalling £66 billion.

With household finances already facing measurable pressure, any new tax measures introduced at the forthcoming Budget would add to the load many families are carrying. Green Party leader Zack Polanski conveyed the view of economists who had told the chancellor that day that maintaining the existing fiscal course was not a viable path forward, while others had argued that welfare spending, rather than the tax burden on working people, was where reductions ought to be considered.

Figures from the period show roughly three in five households had already reduced their outgoings, with many facing an additional £300 on their bills from January, prompting calls for the government to act on the cost of living without delay. Among the proposals put forward are shifting a greater portion of costs away from energy bills, establishing properly funded home insulation across the country, introducing tighter regulation of energy company profit margins, and accelerating the expansion of lower-cost, lower-emission power sources.