Bulletin: Budget tax warning

Budget tax warning

The Institute for Fiscal Studies (IFS) has reviewed the Chancellor’s options for raising revenue,  urging reform and a possible one-off wealth tax.

Its “Green Budget” warns of weak economic momentum, fragile public finances, and the need for productivity growth. To meet the surplus target, at least £22bn in tax rises or spending cuts may be required just to return to the £10bn surplus position outlined in the Spring Budget – and even this would be a perilously small “safety margin” against future problems.

The Chancellor acknowledged explicitly that she is considering both tax increases and spending cuts as she prepares the Budget.

IGD opinion

With the economy stagnating, government finances under pressure, and debt levels rising, the upcoming Budget will undoubtedly be tough. The Chancellor has acknowledged that both tax increases and spending cuts are on the table.

The IFS Green Budget estimates a £22bn fiscal gap that must be addressed to return to the £10bn surplus outlined in the Spring Statement. While this figure represents just 2% of the planned £1,132bn in government spending, it remains politically sensitive. Notably, the National Institute of Economic and Social Research (NIESR) suggest the true requirement could be closer to £30bn.

A key concern is “fiscal vigilantism” – the influence of bond markets on government policy. Rising bond yields reflect investor unease about debt sustainability, a trend seen globally. The Chancellor’s recent comments appear aimed at reassuring institutional lenders that the government has a credible plan to restore fiscal stability. Managing market sentiment will be a central challenge in the lead-up to the Budget.

IGD will be providing expert commentary once the Budget is announced. In the meantime, we continue to monitor developments and contribute insight to help organisations navigate the evolving economic landscape. Our analysis will focus on the implications for the food industry, particularly considering the fiscal pressures and policy choices ahead.

Labour market stalls

The latest data from the ONS shows that the UK labour market remains in the doldrums. Unemployment has edged up to 4.8%, its highest level since the pandemic, while job vacancies have fallen for the 39th consecutive period to 717,000.

More positively, the number of people in work has risen and the number that are economically inactive has fallen.

Average pay growth remains above inflation, making the average worker better off in “real terms,” but the gap between pay growth and price change is narrowing.

See our article: Labour market stalls: Skills and training are key.

IGD opinion

ONS labour data remains uncertain due to low survey participation and monthly fluctuations -year-on-year trends offer clearer insight.

The weak labour market reflects broader economic challenges, though demand is holding up.

Employment structure is shifting public sector roles, especially in health and social care, are rising - likely due to an ageing population. Meanwhile, private sector jobs in foodservice and accommodation have dropped by 90,000, driven by low demand and automation.

Prepare for at least 2°C warming by 2050

The Climate Change Committee has stated that The UK must urgently strengthen climate adaptation objectives. These should be measurable, time-bound, and focused on health, food security, infrastructure, and vulnerable communities. Planning must prepare for at least 2°C warming by 2050, with interim milestones and clear government accountability.

See IGD’s recent report, A climate risk assessment of the UK food system,  which provides a wake-up call for the food system.

Read our article Reframing sustainability: The commercial context.

US-China trade war

The US-China trade war has escalated as President Trump announced a 100% tariff on all Chinese imports starting 1 November 2025, in retaliation for China’s expanded export controls on rare earth minerals. China responded with new port fees and sanctions on US shipping firms. The move threatens global supply chains, retail margins, and consumer prices ahead of Christmas. There is due to be a Summit meeting between the US and China at the end of October.

IGD opinion

The trade conflict between China and the US has moved well beyond tariffs and into a new phase, now focused on control of exports of good and technologies.

Rare earth minerals are used in a range of high-tech industrial applications, including electronics, electric vehicles, computers, and military equipment. China’s decision to control exports on 9 October is therefore a powerful strategic move.

Meanwhile, US lawmakers have threatened to ban exports of chip-making equipment to China as well as an expansion of tariffs on Chinese equipment.

What this means from a food system viewpoint is that trade conflict remains live, morphing into new forms that continue to damp-down global economic growth.

Furthermore, there is the possibility that trade controls will expand either to food and drink commodities or to precursor products such as phosphate minerals.

Phosphates are essential to plant growth and to the production of fertiliser. At present, China is one of the dominant exporters of phosphates, leaving it in a position to affect food production globally if it chooses.

Growth and inflation – the verdict

The International Monetary Fund (IMF) has issued a new World Economic Outlook report. This forecast shows the UK economy growing at 1.3% in 2025 and 1.3% in 2026, when measured in “real terms”. This would make the UK a good performer versus peer nations in the Euro Area and G7.

Inflation is expected to be 2.5% in 2025 and 2.5% in 2026, which is high versus peers.

IGD opinion

The IMF forecast for the UK economy appears to be upbeat, relatively speaking, but it is likely that the bulk of real growth will come via population growth, not increased output per-capita.

Per capita growth is expected to be 0.4% and 0.5% over 2025 and 2026, which is not encouraging, leaving only a thin margin between growth and recession – and no safety margin to absorb any fresh shocks.

Cyber-attack increase

“Highly significant” cyber-attacks increased by 50% in 2024–25, according to the NCSC Annual Review 2025. Ransomware remains the most disruptive threat, with state-aligned actors and AI-driven attacks on the rise. The NCSC calls for urgent resilience across critical infrastructure and democratic systems.

Download our Top 10 risks to resilience, including the role of Cyber security

New Defra Permanent Secretary

The government has announced that Paul Kissack is the new Permanent Secretary at Defra.