Chancellor John Healey has come under scrutiny after the Institute for Fiscal Studies (IFS) warned that his Budget leaves a £28 billion funding gap by 2030, with key spending commitments lacking clear financing. The IFS highlighted two primary concerns: the government’s pledge to raise defence spending to 3% of GDP by 2030 and its broader fiscal strategy, which critics argue relies on unsustainable assumptions.
Chancellor’s Defence Pledge Faces Funding Questions
Healey confirmed in his Budget that the government would aim to meet NATO’s 3% GDP defence spending target by 2030, up from the current 2.6%, with a further goal of 3.5% by 2035. However, the IFS estimates that achieving the 2030 target alone would require an additional £11 billion per year, while the 2035 goal could cost £35 billion annually. The Chancellor did not outline specific funding mechanisms for these increases, leading to criticism over the lack of a concrete plan.
Budget Reserves Drained to Fund Short-Term Measures
The IFS also raised concerns about Healey’s use of government reserves to cover spending gaps. According to the think tank, the Chancellor has already spent 25% of the capital reserve set aside for the next three years and 40% of the day-to-day reserve, actions typically reserved for emergencies rather than routine budget balancing. The IFS described this as a reduction in the government’s financial buffer, leaving it more vulnerable to future economic shocks.
Economic Growth and Cost-of-Living Concerns
Beyond defence spending, the IFS criticised the Budget’s broader economic approach, arguing that it fails to address the UK’s record-low growth in household incomes over the past decade. The think tank described the government’s cost-of-living measures as temporary fixes that do not address underlying structural issues. The Resolution Foundation, a separate economic think tank, echoed these concerns, stating that the Budget’s energy bill support would leave many households facing higher costs than during previous crises.
Political and Fiscal Risks Highlighted
The IFS warned that Healey’s reliance on inflation assumptions and reserve depletion to balance the books could leave the government exposed to future financial pressures. The think tank suggested that the Chancellor may need to pursue spending cuts, tax increases, or additional borrowing to fill the projected shortfall. Labour has defended its Budget, with Healey stating that the government remains committed to its fiscal targets while balancing immediate economic needs with long-term investment.
Defence Spending: A Question of Priorities
The government’s defence spending plans have drawn particular attention amid geopolitical tensions, including concerns about potential Russian aggression in Europe. However, the IFS questioned whether the 3% GDP target by 2030 is achievable without significant cuts to other departments or higher taxes. The think tank noted that the government’s current spending trajectory—2.7% of GDP by next year—falls short of the 2030 goal and relies on optimistic assumptions about economic growth and inflation.
Broader Fiscal Strategy Under Fire
Critics, including the Resolution Foundation, have described the Budget as ‘scattergun’, arguing that it lacks a coherent long-term economic strategy. The think tank, formerly led by former Treasury minister Torsten Bell, highlighted that the government’s measures do little to address the UK’s declining productivity and stagnant wage growth. The Foundation also criticised the government’s Founders’ Relief tax measure, calling it overly complex and lacking clear economic justification.
Government Response and Future Challenges
Labour has defended Healey’s Budget, emphasising that it provides immediate support for households while laying the groundwork for long-term economic growth. However, the IFS and other independent analysts have urged the government to clarify its medium-term fiscal strategy, warning that the current approach risks leaving the UK more exposed to future economic downturns. The Chancellor is expected to provide further details in next year’s Budget, though the IFS has expressed scepticism about whether such commitments will be met.