Reeves preparing for massive hole in UK budget: report
Chancellor Rachel Reeves is braced for a massive hole to be blown in the UK public finances on Friday (3 October) when gloomy new economic forecasts are provided.
The Financial Times reports a productivity downgrade by the Office for Budget Responsibility alone could put a dent of up to £18 billion in the public finances, contributing to an overall fiscal hole of some £30 billion ahead of the November Budget.
A less severe cut in the productivity forecast by the independent fiscal watchdog would still erase the £9.9 billion of ‘headroom’ written into Reeves’ plans at present.
Labour officials warned of a total fiscal shortfall at the Budget that could be as big as £30 billion with the productivity downgrade accounting for a large portion.
Tax rises
The shortfall could explain why the Chancellor made no effort to quell tax rise fears in Labour conference speech over the weekend.
While she did not explicitly repeat Labour’s manifesto commitment not to raise taxes on working people, Reeves did stress that she would not break the trust of voters and would avoid measures that harm ordinary working people.
This may suggest the door remains slightly ajar for indirect tax changes or threshold adjustments in the upcoming budget.
“While headline rates may remain untouched, it seems likely the public could still face a rising tax burden through fiscal drag, and potentially through higher taxes on the wealthy,” said Rachael Griffin, tax and financial planning expert at Quilter.
“This could come in the form of an extension to the existing freeze on income tax thresholds, for example, which has already resulted in a huge increase in tax take and has pulled many people into paying tax for the first time, or even into higher tax brackets,” she said.
The Chancellor used the rumoured freeze extension as her ‘rabbit out of the hat’ moment at last year’s budget, saying plainly that extending the threshold freeze would hurt working people and would go against Labour’s manifesto.
Instead, she declared that from 2028–29 personal tax thresholds would be uprated in line with inflation. Opting to row back on this position could be damaging, but the Chancellor has been left with few other options if she wishes to avoid hiking headline tax rates.
