Chancellor Rachel Reeves is set to deliver a sobering assessment of Britain's economic prospects in this week's budget, revealing that growth forecasts have been downgraded for each of the next five years.
Economic Outlook Worsens Despite Government Efforts
The Office for Budget Responsibility (OBR) has significantly revised its predictions for UK economic expansion through to 2030-31. The independent fiscal watchdog concluded that previous growth projections were overly optimistic, pointing to chronic underinvestment during Conservative administrations as the primary cause.
Despite the Chancellor's attempts to boost output through various measures, the OBR maintains that the UK's economic outlook remains subdued. Treasury officials are reportedly concerned that even additional investment won't sufficiently improve the situation in the short term.
Budget Measures to Counter Downgrade
The downgrade could have substantial fiscal consequences, potentially reducing future tax receipts by £10 billion to £20 billion annually. This shortfall threatens to undermine Labour's electoral prospects heading into the 2029 general election.
In response, Reeves is expected to announce several revenue-raising measures, including:
- A levy on properties valued over £2 million, affecting more than 100,000 high-value homes and raising approximately £400-450 million
- Extension of income tax threshold freezes until 2030, pulling more workers into higher tax bands as wages rise
- Introduction of pay-per-mile scheme for electric vehicles to replace declining petrol duty revenues
- Reduction in generosity of salary sacrifice schemes, including those for pension contributions
Balancing Fiscal Pressure with Cost of Living Support
While seeking additional revenue, the Chancellor also plans measures to ease financial pressure on households. These include lifting the two-child limit for Universal Credit and previously announced freezes on rail fares and prescription charges.
The Treasury defended its approach, stating: "We know there is more to do. That's why we are investing £120bn more than the previous government in national infrastructure, cutting red tape and unnecessary regulation for businesses, introducing a new planning bill and securing new trade deals across the globe."
Reeves has publicly acknowledged that growth forecasts would be affected by the OBR's revision of productivity assumptions, which measure worker output per hour. The decision to downgrade followed agreement among senior OBR executives, including chair Richard Hughes, that previous growth rate expectations were unrealistic.
