Rachel Reeves faces new £20bn Budget blackhole
The country’s finances could face a bigger black hole than expected, says Rachel Reeves, as the fiscal watchdog prepares for next month’s budget amid reports the UK could be about to suffer a collapse in productivity performance.
The BBC said on Tuesday that the Office for Budget Responsibility is concerned that the UK’s productivity performance is expected to fall and could represent an additional £20bn shortfall in the public finances.
There is less than a month until the Chancellor’s Budget is announced on 26 November, with the OBR due to present its final draft forecast in the coming days.
The Chancellor faces the prospect of tax rises or spending cuts to fill the current £40bn gap, as well as an additional £10bn of headroom to help the country prepare for further economic shocks.
Speculation is mounting about what measures Ms Reeves might introduce in the Budget, with changes to income tax and property tax thought to be among the ideas on the table, but the Treasury will not decide what to consider.
A Treasury spokesman said: “We will not be commenting on speculation ahead of the OBR’s forecast being published on 26 November.”
On Monday, Ms Reeves signaled tax increases were being considered ahead of the Budget as the government needed to ensure there was “sufficient headroom” in its spending plans and its fiscal rules were met.
Speaking during a visit to Saudi Arabia on Monday, the chancellor did not rule out tax increases when asked whether they would be considered as part of the budget.
“The basis of economic growth is stability and I will not break the fiscal rules we have set,” he said.
He added: “We will reduce the primary deficit, we will start to reduce the debt as a ratio of GDP because we need more sustainable public finances, especially in the uncertain world we live in today.
“So growth will be a big part of the Budget story, so much so that frankly I think growth has been neglected as a fiscal policy tool over the last few years.
“But of course we’re looking at taxes and spending so that we have enough headroom to ensure that we’re both resilient to future shocks and at the same time just making sure those fiscal rules are followed.”
Last month Independent The budget watchdog is prepared to cut productivity estimates, he said.
A senior source told this publication at the time: “The OBR will make clear that this revision has nothing to do with any measures introduced by this government.”
The tax increases are expected to be announced during the financial event at the end of next month as the chancellor tries to balance the books.
A mansion tax on properties worth more than £2 million is also being considered, but Ms Reeves has been warned such a tax would not be enough to fill the gap.
Former Institute for Fiscal Studies director Paul Johnson said: Independent the government needs to introduce wider reforms to property taxes so that council tax is proportionate to the current value of a property, while stamp duty also needs to be abolished.
