The government faces a potential £35 billion gap in its public spending plans by 2030-31 if it wants to raise defence spending to 3% of national income, maintain health funding increases and compensate departments for pay and productivity pressures, according to the Institute for Fiscal Studies (IFS), the independent economic think tank.
The warning comes ahead of the Autumn Budget, where Chancellor John Healey must decide whether to revise inherited departmental spending plans or force public services to absorb emerging cost pressures within existing budgets.
The IFS calculates that raising defence spending to 3% of gross domestic product by 2030-31, increasing health budgets by 2.7% a year in real terms and avoiding real-terms cuts to other departments could require a top-up of around £20 billion in that year alone.
Adding compensation for pay and productivity pressures pushes the illustrative figure to around £35 billion.
The think tank warns that public sector pay is already running above what departments appear to have budgeted for, with average awards of around 3.4% in 2026-27 against an assumed 2.2% growth path.
If pay continues to track independent forecasts for whole-economy earnings, the resulting pressure on the paybill across non-devolved spending could reach £7 to £9 billion by 2028-29.
Existing spending plans also depend on annual public sector productivity growth of around 1.2%, compared with a historical average of just 0.2%.
The IFS says that achieving only half of those planned gains would add £9 billion to the cost of delivering current public services.
Beyond pay and productivity, special educational needs and disabilities spending poses its own risk, with costs potentially running £3 billion above funding by 2028-29 if recent trends in the number of children receiving support plans continue.
The IFS says the Chancellor must be explicit at the Budget about where any adjustment falls: within public services, elsewhere in government spending, or through higher taxes or borrowing.
