Iran war threatens Healey's Budget plans, think tank warns
The Institute for Fiscal Studies warns that the UK government faces a £35bn budget shortfall due to rising costs from the Iran war and inflation. Chancellor John Healey must navigate these fiscal pressures while balancing defense and health spending commitments.
Why it matters
Economic instability caused by geopolitical conflict directly impacts national public service funding and government fiscal policy, creating significant challenges for the upcoming budget.
Image source, Getty Images By Dharshini David , Deputy economics editor , Dearbail Jordan and Tom Espiner , Business reporters Published 12 October 2026, 00:04 BST Updated 2 hours ago Chancellor John Healey faces having to find £35bn to avoid cuts to public spending while meeting defence promises in his first Budget, an influential think tank has warned.
The Institute for Fiscal Studies (IFS) said that if the government wants to raise defence spending to 3% of national income by 2030 and lift health spending without squeezing other departments, it will need a "top-up" of billions of pounds.
Higher inflation, caused by the Iran war, could eat into what the government hoped to spend on public services, meaning Healey will have to choose between spending cuts, tax rises, or a mixture of both, the IFS said.
Also covering this story
One other newsroom covered this event. We read that version too.
Get smarter about the news
Sign up free for a feed built around what you actually care about, Dive Deeper research on any story, and the full text of every article.
Create free accountAlready have an account? Sign in