Healey faces tight fiscal space as Reeves' £14bn efficiency drive limits budget options

A new analysis by the Resolution Foundation indicates that the fiscal leeway available to Chancellor John Healey has shrunk to roughly £5bn, a sharp drop caused by rising debt-interest costs and wage pressures in the public sector. This contraction follows the £14bn efficiency programme announced by former Chancellor Rachel Reeves, which required all departments to find savings by 2029-30, including a £10.7bn defence efficiency pledge.

Economists at the Institute for Fiscal Studies and the National Institute of Economic and Social Research warn that meeting the government’s fiscal targets will demand "near-heroic restraint" and could force tax hikes. Additional spending pressures stem from planned increases in defence spending to 3% of GDP and upcoming social-care reforms. While modest cuts in real-terms spending could generate modest savings, political pledges against austerity limit the scope for deeper reductions, leaving the upcoming Budget in a tight spot.