Overview
- On Monday, October 12 the Institute for Fiscal Studies quantified a funding shortfall of about £35bn by 2030–31 if departmental budgets are kept in real terms and defence is raised to 3% of GDP.
- The gap breaks down to roughly £25bn to avoid real‑terms cuts to public services and about £11bn to meet the defence target, a scale the IFS says makes a 'steady‑as‑she‑goes' Budget implausible.
- Chancellor John Healey has pledged fiscal discipline and ruled out extra net borrowing, so ministers are weighing targeted revenue measures such as capital gains tax reform, a bank windfall levy, property levies and changes to pension tax relief.
- Political responses are split: Prime Minister Andy Burnham rejects cutting welfare to pay for defence while Shadow Chancellor Andrew Griffith urged welfare cuts, and banks, retailers and unions are lobbying hard over proposed levies.
- The squeeze follows rising gilt yields and world inflation linked to the Middle East conflict, which have reduced the March forecast headroom and raise the stakes for the OBR pre‑Budget assessment and Healey’s October 28 Budget speech.