spending

Chancellor John Healey is facing a funding gap of up to £35bn and must set out “credible” spending plans in his first Budget on 28 October, an influential think tank has warned.

The Institute for Fiscal Studies (IFS) said that if the government wants to increase 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 warned.

The Treasury declined to comment on “rumour and speculation”.

The IFS urged the government to ensure its spending plans are credible, as opposed to proposing unrealistic future cuts to make the Budget add up.

The government is under growing pressure to show financial markets that it has a tight grip on finances as the cost of borrowing rises.

The IFS cautioned Healey about making any spending announcements in the 28 October Budget speech he has no intention of honouring.

“A ‘steady-as-she-goes’ Budget is not an option available to the chancellor,” said IFS director Helen Miller.

“Choosing to stay the course with the inherited tax and spending plans would mean allowing inflation to blow departments’ spending plans off course.

“Simply pencilling in implicit cuts that he has no intention of delivering would make the Budget a work of fiction,” she added.

Speaking ahead of the annual International Monetary Fund meeting this week, Healey said: “The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home.

“But Britain and our allies can face up to these challenges together.”

He said his Budget “will build on this approach with fiscal discipline helping to deliver economic resilience” and give people “breathing space”.

Miller told the BBC’s Today programme that Healey has inherited spending plans for government departments where spending growth would slow in the coming years.

“[It] already looked likely that he would have to make spending cuts just to live within those,” she said. “Now, along comes the Middle East war, inflation goes up and those spending plans look very tight indeed.”

Added to that, the chancellor has said he wants to get defence spending up to 3% of national income. Under Keir Starmer’s leadership, Healey resigned as defence secretary in June in a battle with the Treasury over military spending.

Miller said: “You put all that together, if he wanted to do all of that within current spending plans he’s looking at having to cut some other services by something like £35bn.”

The chancellor does not have to address spending totals in this Budget, and may choose to leave such decisions until future events – for example, next year’s Spring Statement or Spending Review – by which time the outlook for the economy could look very different.

But the IFS warned not addressing it would cast doubt on the credibility of the government’s plans.

Previous chancellors have relied on a similar strategy of pencilling in unrealistic future spending plans to ensure that they meet the fiscal rules on the day – only to change the plans further down the line.

Miller said Healey’s focus on fiscal discipline was a “good first start but what he needs to do is not just say he’s going to cut borrowing in coming years but actually deliver on those plans.”

President Lai emphasises peace and freedom, vows not to tolerate aggression in Taiwan Strait.

Taiwan’s President Lai Ching-te has said the island “cherishes peace” and will “not give up our freedom” in a National Day speech outside the Presidential Office in Taipei.

Lai made the remarks on Saturday before thousands of people, including foreign diplomats.

“We are open to exchanges, but will not accept subordination,” he said. “Our aim by increasing investment in national defence is not to provoke; rather, it is to deter war.”

Taiwanese fighter jets and two Chinook helicopters carrying giant Taiwan flags flew over the capital ahead of the speech.

The holiday marks the 115th anniversary of a 1911 uprising that toppled China’s last imperial dynasty and led to the founding of the Republic of China.

Pressure from China

Taiwan’s 23 million people live under the constant threat of an attack by China, which insists the island is part of its territory, has never renounced the use of force to take it, and calls Lai a “separatist”.

Beijing has rebuffed his offers of talks.

Lai said China continued to “apply pressure through military and grey-zone activities in an attempt to alter the status quo across the Taiwan Strait”.

Grey-zone tactics are actions that stop short of open war. “Peace cannot rely solely on wishes, and tolerance cannot become a pretext for aggressors to encroach ever further,” he added.

Lai’s government has set aside a record 1.1 trillion New Taiwan dollars ($34.5bn) for defence in 2027, more than 3 percent of gross domestic product.

China held war games around the island shortly after Lai’s first National Day speech in 2024, but not last year. Its last drills near Taiwan were in late December, after news of an $11bn arms deal with Washington, the largest ever US weapons package for the island.

Lai said he welcomed talks between the United States and China, but insisted “there must be respect for the right of the people of Taiwan to exist”.

He urged democracies in the Indo-Pacific to join forces to preserve peace and stability in the region.

The US switched official diplomatic relations from Taipei to Beijing nearly 50 years ago but remains Taiwan’s most important security backer.

Officials in Washington and Taipei have repeatedly said US policy on Taiwan has not changed under President Donald Trump.

In May, after meeting Chinese President Xi Jinping in Beijing, Trump suggested arms sales to Taiwan could be a bargaining chip with China, which set off alarm across the world.

Taiwan is now waiting for Trump to sign off on $14bn worth of weapons, including the US-made Patriot air defence system.

The dispute dates back to China’s civil war, when the nationalist forces of Chiang Kai-shek retreated to Taiwan in 1949 after defeat by Mao Zedong’s communists.

The Republic of China remains the island’s formal name.

Organizations publicly opposing Proposition 44 include the California Medical Assn., the California Hospital Assn., which represents hospitals and health systems, the Assn. of California Healthcare Districts, which represents the state’s 76 public healthcare districts, the California Teachers Assn., the state’s Planned Parenthood affiliate, the state Democratic Party, the state Chamber of Commerce and Reform California, a conservative advocacy group.

Opponents say the proposition’s vague wording could result in vital services being excluded from the list of program expenses permitted in the 90% of revenues, prompting clinics to cut programs to avoid financial penalties. A study commissioned by the California Primary Care Assn. found that clinics could face up to $1.7 billion in collective penalties in the first year of the measure’s implementation alone, an additional expense that could leave up to 88% of clinics operating in the red.

Opponents also say the measure adds an expensive layer of bureaucracy to the state’s budget and grants elected officials — in this case, the attorney general — authority to determine which services clinics can offer.