Rachel Reeves' expanding fiscal deficit is poised to worsen as the fiscal watchdog delivers its final productivity assessment to the Chancellor on Friday.
The Treasury is already struggling to manage public finances following a U-turn on welfare reforms that destroyed hopes of £5bn in savings, whilst a £190bn spending spree on government departments has helped erode the Chancellor's razor-thin £9.9bn fiscal headroom.
Reeves has repeatedly reinforced her "iron clad" fiscal rules to finance day-to-day public expenditure through tax receipts.
However, the commitment to these fiscal constraints has sparked speculation that the º£½ÇÊÓƵ will face another fresh wave of taxes come November 26th (Budget) when she takes the dispatch box.
Concerns have only intensified due to the Office for Budget Responsibility's (OBR) productivity report, which is anticipated to widen the public finances gap, as reported by .
The OBR is anticipated to downgrade the output per hour worked by 0.3 per cent—a figure initially suggested by the Financial Times.
The Institute for Fiscal Studies (IFS) has indicated that every 0.1 per cent downgrade would result in public sector net borrowing rising by £7bn in 2029-2030.
This would mean the projected figure from the OBR would add nearly £21bn to the Budget deficit.
Tax increases are imminent.
The Chancellor has started to send clearer indications in recent weeks that tax rises will feature in the Budget. Addressing the Future Investment Initiative – also known as 'Davos in the Desert' – in Riyadh, Saudi Arabia, Reeves braced investors for a challenging Budget next month while emphasising her commitment to fiscal rules.
Speaking to an audience comprising some of the world's wealthiest businesspeople, Reeves stated: "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."
Reports also indicate that Reeves is poised to announce a four per cent increase in the National Living Wage in November – a development that could have severe repercussions for º£½ÇÊÓƵ businesses.
Such an adjustment would necessitate employers to elevate workers' wages from £12.21 to a minimum of £12.70 per hour.
