The Chancellor faces mounting pressure over the Government’s public spending plans after the Institute for Fiscal Studies warned that higher inflation, growing defence commitments and limited fiscal headroom could leave public services facing significant real-terms cuts.
The independent institute says the Autumn Budget of 28 October 2026 leaves substantial spending decisions unresolved, with next year’s Spending Review likely to test the credibility of the Government’s fiscal plans.
Inflation threatens departmental budgets
Higher inflation reduces the purchasing power of departmental budgets set in cash terms. The IFS warned before the Budget that avoiding real-terms cuts to affected day-to-day and investment budgets could require around £25 billion in additional spending by 2030–31 under its assumptions. This is a scenario estimate, not an official funding shortfall.
Defence commitments add pressure
The IFS also estimated that increasing defence expenditure to 3% of GDP by 2030 could cost a further £11 billion in 2030–31. Its post-Budget response questioned how the Government would fund that ambition without topping up overall spending totals.
Less fiscal room for manoeuvre
The IFS says higher borrowing costs reduced headroom against the binding fiscal rule to around £13 billion before Budget measures, with subsequent decisions leaving approximately £15 billion. Fiscal headroom is a forecast margin against a rule, not money sitting in a reserve.
Spending Review will force choices
The IFS argues that next year’s Spending Review will require ministers to reconcile pressure on public services with their plans to reduce borrowing. Choices could involve additional funding, accepting reductions in service provision, raising revenue or reducing other expenditure.
Questions over growth
In its initial Budget response, the IFS said the measures offered little likely to transform the growth outlook. It also identified unresolved questions on disability benefits, social care, support for young people and defence.
What happens next?
The Chancellor argues that the Budget balances immediate support with longer-term fiscal discipline. The IFS assessment does not mean £28 billion of cuts has been announced, or that a tax rise of that amount is inevitable. Outcomes depend on economic conditions and future policy decisions. Next year’s Spending Review will be the critical test.