Rachel Reeves is facing the terrifying prospect of an even bigger black hole in public finances than she expected ahead of her Budget next month. The Chancellor is coming under increasing scrutiny in the run-up to unveiling Labour tax and spending plans from the famous red briefcase on November 26.
But now it’s emerged Ms Reeves’s sums might not add up as the number crunchers at the Office for Budget Responsibility (OBR) have issued a dire forecast for Britain’s productivity. If correct, the prediction would mean an extra £20 billion hole in the country’s coffers.
According to the OBR, there had been an assumption productivity would grow at a more positive rate, but this has now been downgraded by 0.3 percentage points. The Institute for Fiscal Studies think-tank (IFS) calculates for every 0.1 point downgrade, public sector borrowing increases by £7 billion by 2029/30, meaning a 0.3 point cut adds £21 billion the Budget needs to find.
According to the BBC, during a recent visit to Saudi Arabia Ms Reeves blamed the financial crisis in 2008 and Brexit for the OBR being “likely to downgrade productivity”.
Government borrowing between April and September 2025 was also almost the highest on record at £99.8 billion, only surpassed by borrowing during the covid-19 pandemic in 2020. This borrowing figure is £7.2 billion higher than the OBR had forecast in March 2025.
On Monday, an Insight piece published by The House of Commons Library stated “higher borrowing, particularly if it continues into later years, will make it harder for the Chancellor to meet her fiscal targets at next month’s Budget”.
With the nation’s finances floundering, Ms Reeves has signalled tax and spending changes are being considered ahead of her announcement next month.
Asked just last week about claims the Treasury was considering an income tax hike, Ms Reeves reportedly said she would “continue to support working people by keeping their taxes as low as possible” but was still “going through the process” of writing the Budget.
She added: “We are going to reduce that primary deficit, we are going to see debt starting to fall as a share of GDP, because we need more sustainable public finances, especially in the uncertain world in which we live today.
“So growth will be a big part of that Budget story, in a way that, frankly, I think growth has been neglected as a tool of fiscal policy in the last few years.
“But we are looking, of course, at tax and spending to ensure that we both have resilience against future shocks by ensuring we’ve got sufficient headroom, and also just ensuring that those fiscal rules are adhered to.”
