Think-tank warns of tightening Budget
Chancellor Rachel Reeves will need to find up to £22 billion in new savings or tax rises in her November 26 Budget, according to the Institute for Fiscal Studies (IFS) – a shortfall that threatens to force tough decisions on both spending and taxation.
The IFS forecast, published on Thursday, warned that a weaker economic outlook, higher inflation-driven spending and the reversal of welfare cuts had opened a hole in the UK’s public finances. Without new measures, borrowing could exceed the Office for Budget Responsibility’s (OBR) March forecast by £22bn in 2029–30.
The figures add pressure on Reeves to take politically difficult steps to meet her fiscal rules – including running a current budget surplus by 2029–30 and ensuring debt is falling as a share of national income.
Pressure for major tax increases
The IFS said Reeves could technically meet her borrowing rule by raising £12bn, but would need the full £22bn to restore her £10bn “headroom” buffer. It urged the chancellor to go further and create “a bigger safety margin” to avoid what IFS director Helen Miller called a “fiscal groundhog day” of repeated tightening.
Reeves has already hinted that both tax rises and spending cuts are under consideration.
“The numbers will always add up with me as chancellor,” she told Sky News.
Reeves has ruled out a wealth tax, but officials have suggested that higher levies on top earners and pension tax changes are being considered. Treasury sources say the chancellor’s crackdown on non-domiciled taxpayers is already yielding higher-than-expected revenue.
Spending cuts and investor signals
Economists warn that the mix of fiscal tightening will matter as much as its scale. A fixed-income strategist said bond investors would look for a “critical signal of intent” through visible spending restraint or higher income tax rates.
However, the IFS cautioned that delivering fresh spending cuts would be difficult, given the government’s recent struggles to implement welfare reforms and the fact that departmental budgets have only just been finalised.
Reeves’ allies said the Budget would include a crackdown on welfare fraud and push departments to “live within their means.”
With the chancellor under pressure to reassure markets while maintaining political support, November’s Budget is shaping up to be one of the toughest fiscal balancing acts in recent memory.
