Chancellor Reeves Faces £20bn Deficit Amid UK Productivity Downgrade

Chancellor Rachel Reeves is preparing for a challenging Autumn Budget amid grim economic forecasts and a significant productivity downgrade by the Office for Budget Responsibility (OBR), which could widen the fiscal gap by over £20 billion. Despite these challenges, Reeves expressed determination to defy the negative forecasts, attributing the UK's economic difficulties to austerity, Brexit, and the pandemic, and emphasizing the need to focus on future growth rather than past mistakes. She acknowledged the likelihood of further tax increases, including the potential breaking of Labour’s manifesto pledges on income tax, to address the widening fiscal shortfall exacerbated by higher borrowing costs, inflation, and welfare spending reversals. The Institute for Fiscal Studies estimates that Reeves may need to raise around £22 billion in taxes or implement spending cuts to restore fiscal headroom, with the gap possibly rising close to £30 billion due to the productivity downgrade. Reeves plans to avoid significant spending cuts, instead prioritizing long-term decisions and hoping for some relief through better-than-expected inflation figures, modest growth improvements, and policy measures like trade deals and planning reforms. Business leaders and economists remain concerned about the impact of potential tax hikes on investment and economic stability as Reeves prepares to deliver her Budget on November 26.