Think tank: UK Chancellor's first budget needs to raise 36 billion pounds to offset inflationary impact

1. A think tank has stated that UK Chancellor Healey will need to raise £36 billion (about $47.6 billion) in his first budget—either through tax increases or welfare spending cuts—in order to offset the impact of inflation on public service costs and to fulfill the commitment to increase defense spending. 2. The Institute for Fiscal Studies has warned that the October 28 budget cannot simply "maintain the status quo," as former Chancellor Reeves' tax and spending plans have already been affected by the inflation driven up by the Iran war. Without adjustments, investors may question the credibility of the budget. Institute for Fiscal Studies Director Helen Miller indicated that this could mean having to accept significant reductions in the scale of supply or the quality of some public services. 3. Healey and Prime Minister Burnham have said the government will reduce the cost of living. However, public finances are already under significant pressure, and Reeves' last two budgets have already implemented tax increases of over £60 billion, limiting room for further action. Raising an additional £36 billion in taxes would be equivalent to increasing the main personal income tax rate by 3 percentage points. 4. The Institute for Fiscal Studies said that if the government's budget forecasting body determines that rising inflation will lead to higher wage growth and personal income tax revenues, then most of the extra debt interest payments and inflation-linked welfare cost increases could be offset. If this happens, Healey's fiscal headroom—that is, the gap between day-to-day government borrowing and tax revenues in the 2029/30 fiscal year—might only fall slightly to around £20 billion from the £24 billion estimated in March. Although this is low by historical standards, it still exceeds analysts' forecast of £12 billion. 5. The Institute for Fiscal Studies' report is based on projections of inflation averaging 3.1% this year and 3.0% in 2027, higher than the official forecasts in March of 2.3% and 2.0%. Economic growth this year could be revised up from the March estimate of 1.1% to 1.4%, but next year's growth may be revised down from 1.6% to 1.2%.