The UK’s fiscal watchdog has told Rachel Reeves it is expected to lower its productivity growth forecast in a fresh blow to the Chancellor, reports say. It is thought the downgrade will make tax hikes in the Autumn Budget more likely as the Labour frontbencher would need to find more money to balance the books.
A leading think tank has warned there could be a £51 billion black hole in public finances, although this forecast has been rejected by the Chancellor. Next month, the Office for Budget Responsibility (OBR) will reportedly provide a new assessment of productivity as part of its first economic forecast to Ms Reeves. Former productivity predictions were found to have been too hopeful following a review by the OBR, it is said.
The story was broken by the Financial Times, which reported that one analyst said reducing the forecast by 0.1 or 0.2 percentage points would reduce the fiscal position of between £9 billion and £18 billion.
An official said: “We don’t know precisely what they are going to say on productivity, but we have been given indications there will be a downgrade.”
It comes as the Chancellor comes under growing pressure ahead of the Autumn Budget on November 26 when she is widely expected to have to hike taxes to balance the books.
Barclays chief executive CS Venkatakrishnan renewed calls to avoid raising taxes for banks last week, while the Food and Drink Federation (FDF) warned against measures that could cause further costs.
The industry body said food and drink inflation could climb to 5.7% by the end of the year thanks to cost pressures on manufacturers “trickling down” to supermarket shelves, adding current prices “steeper than anything in recent decades”.
Government U-turns on winter fuel payments and planned welfare cuts put a dent of around £6billion in Ms Reeves’ fiscal plans.
The Chancellor is in a difficult position due to an election vow not to increase income tax, national insurance and VAT.
According to reports, Treasury sources said the productivity downgrade has been expected, although the renewed forecasts have not been seen yet.
A Treasury spokesman told The Times: “We are not going to speculate on the OBR’s forecast. We are committed to keeping taxes for working people as low as possible.”