UK Growth Forecasts Set For Cuts Across Next Five Years In Reeves’ Budget

Chancellor Rachel Reeves is expected to announce in her upcoming budget that the United Kingdom’s economic growth prospects have been downgraded for each of the next five years. These reductions come from a reassessment by the Office for Budget Responsibility, which has reportedly concluded that earlier assumptions about productivity and long term growth were too optimistic.

The revision is a serious setback for the new Labour government, which has made economic growth the central pillar of its political strategy. Reeves has positioned herself as a chancellor focused on stability, investment and improved productivity. Yet the independent analysis from the OBR suggests the UK economy will expand more slowly than previously anticipated, regardless of new measures introduced in Labour’s first budgets.

This development creates political and financial challenges. Lower growth means weaker tax receipts, tighter spending options and a potential risk to Labour’s electoral narrative ahead of the next general election in 2029.

Why Growth Forecasts Are Being Downgraded

The OBR has reportedly revised down its projections for every fiscal year up to 2030–31. The central reason lies in the forecaster’s updated view of how the UK’s productivity is likely to evolve. Productivity, which measures economic output per hour worked, has been stagnant for more than a decade, and recent data has not supported expectations of a strong rebound.

According to reports, senior figures in the OBR, including Chair Richard Hughes, accepted that previous growth assumptions were overly optimistic. This triggered a full review of medium term projections, leading to a downgrade that Reeves will now be required to present formally in her budget.

The OBR’s new figures reportedly argue that years of insufficient investment under Conservative administrations restricted the UK’s long term potential. This lack of investment affected the country’s infrastructure, business development, industrial strategy and workforce capabilities. Although the Labour government is now investing more heavily, those measures cannot immediately reverse structural weaknesses built up over many years.

Short Summary

Financial Consequences For The UK Budget

A reduction in medium term growth forecasts has a direct effect on tax revenue assumptions. With the UK economy projected to grow more slowly, the amount of money that the government can expect to collect in taxes declines.

According to early estimates, the downgrade could reduce annual tax receipts by between £10 billion and £20 billion. This creates a significant budgetary pressure for Reeves, who must balance public spending, debt management and her party’s political commitments.

The Treasury has acknowledged that the UK economic outlook remains subdued and that growth alone cannot fill the gap. Although Reeves has argued that her policies will increase output over time, they will not be sufficient to counteract the short term downward revisions.

Government Response And Defence

The Treasury declined to comment directly on the leaked forecasts but has highlighted the government’s broader economic programme. A Treasury spokesperson stressed that the government is investing £120 billion more than its predecessor in national infrastructure. They also emphasised efforts to reduce unnecessary regulations, secure new international trade agreements and introduce reforms to the planning system.

Reeves has repeatedly expressed confidence that her budget measures will boost productivity over time, but she has also acknowledged publicly that the OBR’s revised assumptions will have a negative effect on growth forecasts.

Possible Tax Increases And Revenue Measures

Because the OBR’s downgrade is expected to reduce available fiscal space, Reeves is preparing a range of tax measures to raise revenue without cutting essential public services.

1. High Value Property Levy

A new levy is reportedly being considered for properties worth more than £2 million. This could affect more than 100,000 households and raise between £400 million and £450 million.

2. Freezing Income Tax Thresholds

Reeves is expected to extend the freeze on income tax thresholds for two additional years, until 2030. As wages rise, more taxpayers will move into higher tax brackets, increasing government revenue through fiscal drag.

3. Electric Vehicle Road Use Charge

With petrol duty falling due to rising electric vehicle adoption, the Treasury is considering a pay per mile scheme for EV drivers. This would help offset future losses in fuel tax revenue.

4. Salary Sacrifice Restrictions

The chancellor may also tighten rules for salary sacrifice schemes, including pension contributions, which currently reduce taxable income for many employees.

Cost Of Living Support And Social Policy Changes

Alongside revenue raising measures, Reeves is expected to introduce policies aimed at softening the impact of high inflation and stagnant real wages.

The government has already announced a freeze on rail fares and prescription fees. The budget is also expected to include the lifting of the two child limit for universal credit claimants, a change that would support low income families facing rising living costs.

These measures reflect Labour’s wider commitment to easing the burden on working households while delivering long term economic reform.

Political Implications For The 2029 Election

The OBR downgrades pose a challenge to the government’s political strategy. Labour won the 2024 general election on a platform built heavily around economic renewal, business confidence and sustainable growth.

If the official forecasts point to weaker performance than hoped, Reeves and Prime Minister Keir Starmer may face increased scrutiny from both political opponents and the public. The narrative of inherited structural weakness from previous governments is likely to feature prominently in their response.

Labour will argue that while the OBR’s revisions reflect past failings, the government’s ambitious investment plans will gradually raise output and restore economic resilience. However, the slow pace of economic improvement may complicate efforts to deliver more generous spending commitments ahead of the 2029 election.

Frequently Asked Questions

1. Why is the OBR cutting the UK’s growth forecasts?

The OBR has revised growth forecasts downward because it now believes earlier assumptions about productivity and potential output were too optimistic. Weak long term investment under previous governments is a major factor in the decision.

2. How will lower growth forecasts affect the government’s budget?

Lower growth translates into lower future tax receipts. The downgrade could cut between £10 billion and £20 billion from annual revenue, creating fiscal pressure on upcoming budgets.

3. What new taxes may be introduced in the budget?

Possible tax measures include a levy on high value properties, an extension of income tax threshold freezes, restrictions on salary sacrifice schemes and a pay per mile charge for electric vehicles.

4. Will the budget include any cost of living support?

Yes. The government has already announced freezes on prescription fees and rail fares, and is expected to lift the two child limit for universal credit claimants.

5. Does this downgrade affect Labour’s election prospects for 2029?

Potentially. Labour has centred its political message on economic growth. If official forecasts remain weak, it could complicate the party’s narrative. However, Labour will argue that structural weaknesses were inherited and that its policies will improve growth over time.

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