Britain Faces a Dilemma: Raise Taxes or Cut Welfare Spending

The Institute for Fiscal Studies in Britain warned that sharp inflation and rising government spending following the US and Israeli military aggression against Iran have posed a serious challenge to the country's budget.

The British Institute of Financial Studies warned that the sharp increase in inflation and government spending following the military aggression of the United States and the Zionist regime on Iran has faced a serious challenge to the country's budget.

Ambassador Arjan - International Group: The British Institute of Financial Studies (IFS), which is considered one of the most reliable and independent economic research centers in this country and works in the field of tax policies, budgets and public expenditures, announced in its annual report entitled "Green Budget 2026" that the government of this country may be forced to increase taxes or reduce welfare costs by about 35 billion pounds in order to compensate for the inflationary pressures on public services and to provide planned defense expenditures.

This institution warned that the surge in energy prices following the war against Iran has increased the cost of government borrowing and reduced the real value of the budget of the executive bodies. In such a situation, British finance minister John Haley faces difficult decisions to present his first budget on October 28 (November 6), which could lead to an increase in tax pressure or a reduction in public services.

Helen Miller, head of the British Institute of Fiscal Studies, warned about the consequences of continuing the current fiscal policies and stated that the government cannot hope to maintain the status quo without revising spending plans. He warned that keeping the budget of the ministries stable in the current inflationary conditions will lead to a significant reduction in the quantity or quality of public services.

Miller also emphasized that if the government, in order to achieve its financial goals, predicts the reduction of expenses that it does not intend to actually implement, the budget will become an unrealistic document.

According to calculations by the Institute for Fiscal Studies, the UK government will need around £25 billion of additional funding by the 2030-2031 financial year to avoid a real cut in the public service budget. Increasing the military budget to three percent of GDP would also add another £11 billion to spending.

The institute also estimated that rising government bond interest rates would increase the cost of borrowing by around £10bn in the 2029-2030 financial year. Currently, out of every 13 pounds spent by the British government, 1 pound is used to pay interest on accumulated debts.

In another part of this report, it is stated that the military aggression of the United States and the Zionist regime against Iran has significantly weakened the British economic outlook and destroyed the hope of a sustainable reduction in inflation with the new energy price shock.

According to the findings of this institute, the price of oil has increased from around 60 dollars per barrel at the beginning of this year to around 100 dollars, and the wholesale price of gas in England has also increased from around 70 pence to 185 pence per semester.

In addition to increasing the cost of production and services, these developments have reduced the purchasing power of British households. The Institute for Financial Studies predicts that UK economic growth will slow to 1.2% in 2027 and the unemployment rate will rise to 5.7%.

This report is published in a situation where the reviews of other economic institutions also indicate a sharp decrease in the financial power of the British government as a result of the increase in inflation and borrowing costs.

Financial services and auditing firm Ernst & Young (EY) had previously announced that the UK government's financial margin to meet budget targets fell to £11.3 billion from £23.6 billion in March.

This institution had warned that if the disruption in the Strait of Hormuz continues and inflationary pressures increase, this financial margin may be completely destroyed and the government will face a deficit of about seven billion pounds compared to the set financial goal.

The pressures of the energy crisis have also spread to the cost of living of millions of British households. The British Energy Regulatory Authority (Afcom) has announced that the energy tariff ceiling has increased by four percent since the beginning of October and has reached the annual equivalent of 1,723 pounds for a household with normal consumption.

The increase will affect around 22 million households on default tariffs and will increase a typical household's energy bill by around £60 a year.

All of these developments show that the economic consequences of the military aggression of the US and the Zionist regime to Iran have gone beyond the global oil and gas markets and have become one of the factors of pressure on the public budget, government services and the livelihood of British households.

Andy Burnham's government is now on the verge of presenting a new budget and is faced with the challenge of how to curb the borrowing costs and meet the financial obligations, while preventing the intensification of pressure on public services and people's purchasing power.

Severe budget deficit, low economic growth and dependence on foreign support are the most important characteristics of Israel's vulnerable economy today. With the continuation of Israel's war against Gaza, the economy will probably become the Achilles heel of Netanyahu's hard-line cabinet.

Parliamentarians today agreed with the general budget amendment bill 1403.

In addition to the representatives' objection to the issue of the government's lack of attention to the proportionality of retirees' rights, other reasons such as the inconsistency of the budget with the 7th plan, energy imbalance, 50% increase in taxes, the amount of oil sales, and the inflationary nature of the budget have been raised by some representatives as reasons for opposing the generality of the budget bill.