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5h ago

OBR Poised to Cut UK Productivity Outlook, Raising Pressure for Tax Rises

The downgrade would swell the projected deficit by curbing growth-driven tax receipts.

Concern about the UK’s low labour productivity goes back a long way (Photo: FG Trade/ Getty)
Keir Starmer, UK prime minister, centre, and Rachel Reeves, UK chancellor of the exchequer, speak with staff at the Jaguar Land Rover automobile manufacturing plant in Solihull, UK, on Monday, April 7, 2025. The autos industry has been hit particularly hard by the US plans to impose a 25% tariff on cars imported into the US, forcing some manufacturers to temporarily halt production or offer big discounts. Photographer: Adam Vaughan/EPA/Bloomberg via Getty Images

Overview

  • Britain’s budget watchdog is expected to lower trend productivity by about 0.3 percentage points in forecasts due Friday, according to reporting cited by The Observer.
  • The Institute for Fiscal Studies estimates each 0.1 percentage‑point cut adds roughly £7bn to the 2029/30 shortfall, implying at least about £17.5bn from the anticipated downgrade.
  • The National Institute of Economic and Social Research warns the gap against the debt rule could reach about £41bn under weaker growth assumptions.
  • Ministers are weighing options including a reported 2p rise in income tax, changes to national insurance and an extended base covering rental income and the self‑employed, alongside higher property and pension‑related taxes.
  • Advisers have urged Chancellor Rachel Reeves to increase fiscal headroom from roughly £10bn to £20bn after abandoned welfare savings, the report says.