The Institute for Fiscal Studies (IFS) has called on Chancellor Rachel Reeves to consider billions of pounds in welfare cuts in next month's budget to help calm jittery financial markets. The thinktank warned against 'doing the bare minimum' to rebuild a financial buffer against her self-imposed fiscal rules, suggesting that welfare savings alongside tax rises may be necessary.
Options proposed by the IFS include scrapping the pensions triple lock, reducing health-related and disability benefits, and limiting growth in spending on special educational needs. However, such measures could reignite tensions with backbench Labour MPs after ministers were forced into an embarrassing U-turn earlier this year over welfare savings.
In its annual 'green budget' report, the IFS said the chancellor may need to raise at least £22bn through a mix of tax and spending measures to restore headroom against her fiscal rule, which requires day-to-day spending to be matched by revenues by the end of the parliament. The Office for Budget Responsibility is expected to downgrade forecasts due to rising borrowing costs and weaker productivity.
Ben Zaranko, an associate director at the IFS, said any changes must be presented as reforms to improve outcomes. Helen Miller, IFS director, argued for building a larger buffer to avoid 'groundhog day' speculation about meeting the rules. Barclays noted that credible welfare cuts would demonstrate political will, with fixed income strategist Moyeen Islam describing welfare as 'totemic' for markets.
An HM Treasury spokesperson declined to comment on speculation, reiterating that the chancellor's fiscal rules provide stability and support long-term growth.
