Budget Day Approaches Amid Mounting Criticism
Chancellor Rachel Reeves faces intense scrutiny just one day before delivering a highly anticipated Budget, expected to include tens of billions in tax increases. This comes despite her previous commitment that taxes would not rise following last year's hikes.
The Chancellor may argue that changing global circumstances and unexpected Office for Budget Responsibility downgrades forced her hand. However, prominent economists speaking exclusively to City AM challenge this narrative, suggesting the government should have anticipated these developments.
Economists Question Fiscal Strategy
Sir Charlie Bean, former member of the OBR's Budget Responsibility Committee and ex-Bank of England chief economist, stated that expected productivity downgrades costing the Treasury approximately £20 billion should not have surprised the government.
"The government cannot claim that this is something that's come out of the blue," Bean told City AM. "This is not an unusual forecast re-evaluation, given what's happened and also where other forecasters are."
He directly criticised Reeves' fiscal planning, noting: "The real issue here is that Rachel Reeves was unwise to leave herself such a small amount of fiscal headroom, knowing the substantial range of uncertainty around the forecast. You're asking for trouble if you leave yourself a small margin of error."
Public Sector Productivity Concerns
Former Bank of England interest rate-setter Jonathan Haskel described this year's OBR review as "fair" while emphasising the need to address public sector output levels.
Recent data revealed falling productivity across healthcare during the three months to June, with Haskel stating: "Our current poor labour productivity is a choice. Falling labour productivity in the health and care sector over the last six years is a major drag on labour productivity."
He added that if the sector had achieved even zero productivity growth, overall labour productivity would nearly double, highlighting the significant impact of public sector performance on the wider economy.
The criticism emerges as the government prepares to unveil its Budget amid challenging economic conditions, with economists suggesting the Treasury had sufficient warning about potential forecast revisions.
