IFS Budget Analysis Warns of “Fiscal Fiction” in UK Spending Plans

The Institute for Fiscal Studies (IFS) has issued a stark warning about the UK’s economic direction. The respected think tank’s analysis of the recent Budget paints a challenging picture. They argue the government’s fiscal strategy relies on unrealistic future spending cuts.

According to the IFS, Chancellor Rachel Reeves’s plans depend on “near-heroic” restraint. This approach delays major tax increases until the final years of the parliament. The analysis raises serious questions about the plan’s political credibility.

Delayed Austerity and the “Pre-Election” Gamble

A central IFS criticism focuses on timing. Key revenue-raising policies, like a new “mansion tax,” are scheduled for 2028-29. That is just before the next general election is expected.

The think tank argues this creates a “fiscal fiction.” It questions whether any government would implement such large changes so close to an election. The Resolution Foundation echoed this, calling it “pre-election austerity.”

Much of the Chancellor’s fiscal headroom comes from ambitious spending assumptions. Departmental spending growth is slated to slow sharply in 2028 and 2029. The IFS director, Helen Miller, stated this requires historically unprecedented restraint.

Households Face a “Truly Dismal” Income Outlook

The real-world impact on British citizens is severe. IFS forecasts, using Office for Budget Responsibility data, show disposable income growth of just 0.5% annually. Helen Miller described this forecast as “truly dismal.”

This translates to minimal gains for the average household. The typical person may see only around £104 more per year. It represents a significant slowdown compared to historical income growth rates.

Simultaneously, the extended freeze on tax thresholds will pull more people into higher tax brackets. By 2029, over a quarter of taxpayers will be affected. This move contradicts Labour’s manifesto pledge not to raise taxes on working people.

The IFS budget analysis presents a sobering reality check for the government’s economic strategy. Its success hinges entirely on future political will that many experts find questionable. The coming years will test the credibility of these delayed fiscal plans.

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What did the IFS mean by “fiscal fiction”?

The IFS used the term to describe tax and spending plans scheduled for just before the next election. They argue such policies are politically unlikely to be implemented as designed, making the long-term budget math unrealistic.

How will the tax threshold freeze affect me?

If your income rises, you will pay more tax as you are pushed into a higher band. The IFS calculates basic-rate taxpayers will pay an extra £220 yearly, while higher-rate payers face an additional £600.

What is the main criticism of the government’s growth plan?

The IFS said the Budget lacked bold measures to boost the UK’s sluggish economy. Despite naming growth its “number one mission,” the government proposed no major reforms to tax, competition, or regulation to drive it.

Why is the timing of the tax rises significant?

Scheduling major tax rises for 2028-29 places them immediately before the likely election date. Analysts believe any government would be reluctant to enact unpopular measures then, casting doubt on the entire fiscal plan.

How have financial markets reacted to the Budget?

The initial reaction was muted. Government bond yields fell slightly and sterling rose. Some economists see this as temporary investor relief, but skepticism remains about the long-term delivery of the planned austerity.