Here’s a stark reality: the UK’s productivity slump could force Chancellor Rachel Reeves to break her promise of no tax hikes for working people. But here’s where it gets controversial—is this a failure of economic policy, or an unavoidable consequence of deeper structural issues? Let’s break it down.
Chancellor Rachel Reeves is gearing up for her Budget announcement on 26 November, and tax increases are on the table. Why? The Office for Budget Responsibility (OBR), the government’s official forecaster, is set to lower its productivity growth predictions for the UK in the coming years. And this is the part most people miss—productivity isn’t just an economic buzzword; it’s the lifeblood of a nation’s prosperity. In simple terms, productivity measures how much the UK economy produces for every hour worked by its population. Higher productivity often means higher wages, stronger economic growth, and more tax revenue for the government.
In March 2025, the OBR predicted UK productivity would grow by around 1% annually over the next five years. But if productivity falters, so does GDP growth—and with it, tax revenues. The Institute for Fiscal Studies (IFS) estimates that every 0.1 percentage point drop in productivity growth could increase government borrowing by £7 billion in 2029–30. That’s the year the government aims to balance its day-to-day spending with tax revenues, avoiding borrowing for anything other than investment.
Here’s the crunch: if the OBR slashes its productivity growth forecast from 1% to 0.8%, the government’s projected borrowing in 2029–30 could soar by £14 billion. In March, Chancellor Reeves gave herself a buffer of just £9.9 billion to meet her borrowing rules. A £14 billion hit would wipe that out entirely, pushing the government into a deficit. To avoid this, she’d likely need to either cut spending or raise taxes—and with departmental budgets already fixed, tax hikes seem the more likely route.
But here’s the kicker—could this have been avoided? The UK’s productivity growth has been unusually weak since the 2008 financial crisis. Between 1971 and 2009, it averaged 2% annually, but since 2010, it’s plummeted to just 0.4%. While this slowdown isn’t unique to the UK, our decline has been sharper than most G7 nations. Economists point to multiple culprits: the lingering impact of the financial crisis, austerity measures under the previous Conservative government, Brexit-related trade disruptions, and chronic underinvestment in the economy.
Interestingly, the OBR’s latest downgrade isn’t entirely unexpected. Its previous forecasts were more optimistic than those of the Bank of England or the IMF, so this adjustment brings it more in line with other predictions. Public finance experts argue that if Chancellor Reeves had built a larger buffer into her fiscal plans in March 2025, she might not be facing this tax dilemma now.
Now, the controversial question: Is this a failure of short-term fiscal planning, or a symptom of long-term economic neglect? And should taxpayers bear the brunt of these challenges? Let us know your thoughts in the comments—this is a debate worth having.
