Latest news with #UKbudget
Yahoo
19 hours ago
- Business
- Yahoo
Reeves braced for OBR forecasts to blow £20bn hole in tax and spending plans
Rachel Reeves is braced for revised forecasts by the Office for Budget Responsibility (OBR) to blow a £20bn hole in her tax and spending plans before the autumn budget. Even without changing the totals the chancellor set out in her spending review on Wednesday, a weaker forecast from the the Treasury's independent watchdog could force her to find significantly more money at the budget to meet her 'non-negotiable' fiscal rules. Reeves has said repeatedly that flexing her fiscal rules – designed to provide certainty over UK public finances – is not an option even if the economic outlook deteriorates. At her spring statement, she left herself on course to meet those rules with less than £10bn of headroom to spare, on a total budget for day-to-day spending of more than £1.3tn. Amid trepidation at the Treasury, the OBR has kicked off its annual summer review of the 'supply side' of the economy – including productivity, which it has consistently overestimated. Sources with knowledge of the OBR's thinking told the Guardian that the watchdog was 'uncomfortable', with the fact its current forecast for productivity growth was more positive than the consensus from other economic forecasters, and wanted to 'rein it in'. Productivity is one of the key determinants of economic growth, and revising it down would have a significant knock on effect on the OBR's forecasts for gross domestic product. The consultancy Oxford Economics estimates that moving the productivity forecast back in line with the average independent projection, would knock 1.4% off forecast GDP at the end of the OBR's five-year forecast period. That would force Reeves to increase taxes or cut spending by an eye-watering £20bn, to meet her fiscal rules and maintain her slim £10bn of headroom. That would be roughly equivalent to raising both the main and higher rates of income tax by 2p. A more cautious approach, taking the middle path between two alternative 'scenarios' the OBR set out in its March economic and financial outlook, could still force the chancellor to make a £12bn correction. The OBR could send an early signal of its intention to revisit its productivity outlook as soon as 1 July, in its regular forecast evaluation report. Andy King, a former member of the OBR's budget responsibility committee, now at the consultancy Flint Global, said: 'The reason why anyone in the Treasury who cares about this will be worried, is that the OBR is currently more optimistic than everyone else. 'What can happen next? Either everyone else thinks, 'We're too pessimistic'; or the OBR thinks, 'We are too far away from the pack, there's been more bad news than good since March, we should revise down.' I think that's the expectation for many.' The Treasury is likely to point the OBR to policies it hopes will be positive for productivity growth in the long term, including infrastructure investment, though the scale of this was already known before the OBR's last forecast in March. Alongside weaker productivity, slower net migration as a result of the government's recent white paper could also prompt the OBR to be more pessimistic. James Smith an economist at ING, said: 'Further downgrades to trend productivity growth projections, as well as net migration, mean the chancellor is likely in the red, before even considering the mounting pressures on the public purse. 'The overall shortfall may amount to at least £20bn, and that means tax rises are highly likely.' Adrian Pabst, the deputy director of the National Institute of Economic and Social Research, said the prospect of another significant forecast revision underlined the current instability of tax and spend policy. 'We're in this vicious circle where we've got these fiscal rules, then the OBR have to take a view, because that's their remit, that's their mandate; and then we're constantly speculating about what is going to happen at the next fiscal event,' he said, adding: 'It's not a good place for fiscal policy to be.' In a recent speech, Reeves said: 'Strong and transparent fiscal rules are an indispensable safeguard for working people – and that is why my rules are non-negotiable.' The Treasury declined to comment on the prospect of an OBR growth downgrade but underlined Reeves's determination to stick to her fiscal rules. The OBR declined to comment.
The Guardian
19 hours ago
- Business
- The Guardian
Reeves braced for OBR forecasts to blow £20bn hole in tax and spending plans
Rachel Reeves is braced for revised forecasts by the Office for Budget Responsibility (OBR) to blow a £20bn hole in her tax and spending plans before the autumn budget. Even without changing the totals the chancellor set out in her spending review on Wednesday, a weaker forecast from the the Treasury's independent watchdog could force her to find significantly more money at the budget to meet her 'non-negotiable' fiscal rules. Reeves has said repeatedly that flexing her fiscal rules – designed to provide certainty over UK public finances – is not an option even if the economic outlook deteriorates. At her spring statement, she left herself on course to meet those rules with less than £10bn of headroom to spare, on a total budget for day-to-day spending of more than £1.3tn. Amid trepidation at the Treasury, the OBR has kicked off its annual summer review of the 'supply side' of the economy – including productivity, which it has consistently overestimated. Sources with knowledge of the OBR's thinking told the Guardian that the watchdog was 'uncomfortable', with the fact its current forecast for productivity growth was more positive than the consensus from other economic forecasters, and wanted to 'rein it in'. Productivity is one of the key determinants of economic growth, and revising it down would have a significant knock on effect on the OBR's forecasts for gross domestic product. The consultancy Oxford Economics estimates that moving the productivity forecast back in line with the average independent projection, would knock 1.4% off forecast GDP at the end of the OBR's five-year forecast period. That would force Reeves to increase taxes or cut spending by an eye-watering £20bn, to meet her fiscal rules and maintain her slim £10bn of headroom. That would be roughly equivalent to raising both the main and higher rates of income tax by 2p. A more cautious approach, taking the middle path between two alternative 'scenarios' the OBR set out in its March economic and financial outlook, could still force the chancellor to make a £12bn correction. The OBR could send an early signal of its intention to revisit its productivity outlook as soon as 1 July, in its regular forecast evaluation report. Andy King, a former member of the OBR's budget responsibility committee, now at the consultancy Flint Global, said: 'The reason why anyone in the Treasury who cares about this will be worried, is that the OBR is currently more optimistic than everyone else. 'What can happen next? Either everyone else thinks, 'We're too pessimistic'; or the OBR thinks, 'We are too far away from the pack, there's been more bad news than good since March, we should revise down.' I think that's the expectation for many.' The Treasury is likely to point the OBR to policies it hopes will be positive for productivity growth in the long term, including infrastructure investment, though the scale of this was already known before the OBR's last forecast in March. Alongside weaker productivity, slower net migration as a result of the government's recent white paper could also prompt the OBR to be more pessimistic. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion James Smith an economist at ING, said: 'Further downgrades to trend productivity growth projections, as well as net migration, mean the chancellor is likely in the red, before even considering the mounting pressures on the public purse. 'The overall shortfall may amount to at least £20bn, and that means tax rises are highly likely.' Adrian Pabst, the deputy director of the National Institute of Economic and Social Research, said the prospect of another significant forecast revision underlined the current instability of tax and spend policy. 'We're in this vicious circle where we've got these fiscal rules, then the OBR have to take a view, because that's their remit, that's their mandate; and then we're constantly speculating about what is going to happen at the next fiscal event,' he said, adding: 'It's not a good place for fiscal policy to be.' In a recent speech, Reeves said: 'Strong and transparent fiscal rules are an indispensable safeguard for working people – and that is why my rules are non-negotiable.' The Treasury declined to comment on the prospect of an OBR growth downgrade but underlined Reeves's determination to stick to her fiscal rules. The OBR declined to comment.
The Independent
4 days ago
- Business
- The Independent
PM picked ‘wrong Chancellor and wrong priorities', claims Badenoch
Kemi Badenoch has accused the Prime Minister of 'running away' from a 'U-turn' on winter fuel payments for pensioners. The Conservative Party leader accused Sir Keir Starmer of appearing at the despatch box 'all puffed up and self-righteous', and claimed he has 'the wrong Chancellor and the wrong priorities'. Sir Keir listed 'three trade deals, record investment, breakfast clubs, social affordable housing, defence review' and the decision to pump £14.2 billion into building Sizewell C nuclear power station in Suffolk as being among his achievements. At Prime Minister's Questions, Mrs Badenoch told the Commons: 'Last year he said he was taking the winter fuel payment away to balance the books. 'But the books are not balanced, in fact they are worse. 'This year the deficit is forecast to be £10 billion higher since the budget. 'Not since last year's election, since the budget. 'In what way are the books now balanced?' Chancellor Rachel Reeves last year announced that the Government would strip pensioners of the universal winter fuel payment, unless they claimed certain means-tested benefits. But the Government has since said pensioners with a gross taxable income of less than £35,000 will be eligible for payments of up to £300 each winter. Sir Keir replied: 'She's obviously missed the interest rate cuts, the growth figures for earlier this year, the strategic defence review, local transport – £15 billion going in, free school meals, Sizewell, social housing. 'She stands there to lecture us, and I see Liz Truss is obviously back in vogue. 'Advising Reform officially now, haunting the Tories, and I remind her that the shadow home secretary (Chris Philp), I think he was then chief secretary to the Treasury, he gave a Liz Truss budget 9.5 out of 10. 'The Leader of the Opposition said what was wrong with Liz Truss's budget was not necessarily the package, that was alright, it was the way it was sold. 'They've learnt absolutely nothing.' In a follow-up question, Mrs Badenoch said the Prime Minister mentioned Ms Truss because he 'wants to hide from his own economic record'. She added: 'He's a coward. 'Every time he stands up there and talks about Liz Truss it's because he is scared about talking about his record and what is happening to the economy out there. 'Let's bring it back to the U-turn which he's running away from. 'A U-turn on the policy his MPs went out defending time and time again.' Mrs Badenoch continued: 'This is laughable. 'He stands there all puffed up and self-righteous. 'Why can't the Prime Minister just admit that he made a mistake?' In his response, the Prime Minister said: 'Three weeks ago I said that I wanted more pensioners to be eligible for winter fuel. 'I'm really pleased we've set out the threshold for the certainty that is needed. 'She says I don't want to talk about record. 'What about three trade deals, record investment, breakfast clubs, social affordable housing, defence review, Sizewell, we could go on all morning.' He added: 'At the weekend she said that she would be getting better in the role. 'She could start with apologising for the Liz Truss budget, that would be better.' Speaker Sir Lindsay Hoyle rebuked laughing Labour MPs after Mrs Badenoch said her PMQs performances 'get better every week'. He told them their behaviour was a 'very bad look'. In her question, Mrs Badenoch said Ms Reeves said the winter fuel payment 'U-turn won't be funded through higher borrowing'. She asked: 'So, will the Prime Minister admit that it will be funded by putting everybody's taxes up?' Sir Keir said: 'At the budget, we put record investment in our NHS and our public services – record investment – but she comes every week to carp on about national insurance, but she doesn't stand there with the courage of her convictions and say she'll actually reverse it, and the reason she won't? 'Because she won't stand up and say she's against the investment in the NHS, she won't stand up and say she's against the investment in our public services, and we'll all listen very carefully in just 20 minutes when the Chancellor lays out more record investment as to whether they welcome it, or whether they'll say they wouldn't support it.' In her final question, Mrs Badenoch said Ms Reeves had 'made bad choices – bad choices that mean higher inflation, bad choices that have led to lower growth, bad choices that have meant that jobs have been lost every single month since Labour come into office'. She said 'thousands of families' had 'lost their incomes in Stoke, in Grangemouth, in Luton', before she asked: 'Isn't the truth that we've got the wrong Chancellor and the wrong priorities?' Sir Keir said: 'A wrong choice they made was making her Leader of the Opposition.' Turning to the Government's plan to hand the Chagos Islands to Mauritius, where the UK maintains a military presence on Diego Garcia, Mrs Badenoch had earlier claimed 'Mauritius is scrapping income tax' and asked: 'Why on earth should the British taxpayer pay £30 billion for tax cuts in Mauritius?' The Government risked jeopardising the 'vital intelligence and strategic capability' on Diego Garcia without a deal, the Prime Minister warned. 'Legal uncertainty would compromise it in very short order,' he added.
Reuters
5 days ago
- Business
- Reuters
Sterling ticks lower ahead of closely watched UK spending review
(Reuters) June 11 - Sterling fell against a firmer dollar on Wednesday, as markets geared up for a multi-year UK spending review due later in the day from British finance minister Rachel Reeves, who is set to reveal how public spending will be divided up. The pound was last down 0.2% versus the dollar at $1.3472, and was weaker against the euro, which rose 0.1% to 84.68 pence . The dollar edged up against a range of currencies after U.S. and Chinese trade representatives wrapped up two days of talks in London where they agreed on a framework to bring their tariff truce back on track. Reeves will set out the allocation of around 2 trillion pounds ($2.7 trillion) of public spending, with plans for allocations for research and development, public transport, a new nuclear power station, nuclear submarines and prisons already announced. "When it comes to day-to-day spending, there's still probably not enough cash to go around, so more money would need to be found in the autumn budget," said Francesco Pesole, FX strategist at ING. "The take-away for markets today will simply be confirmation that there is very little fiscal headroom." The only risk for sterling would come from changes in the gilt market, which can be more sensitive to anything related to UK budgets, Pesole said. Sterling has soared almost 8% in 2025 and is not far off a three-year high of $1.3593 hit on May 26 with trade jitters and wariness over the global economic outlook underpinning dollar weakness. Meanwhile, the fact that Britain is the only country to strike a trade agreement with the U.S. has lent support to the pound. But the outlook for the British economy remains murky. Jobs data on Tuesday showed pay growth slowed sharply and unemployment rose to its highest level in nearly four years in the three months to April. The Bank of England is still expected to keep rates on hold at next week's meeting, with markets placing a 90% likelihood on that outcome. Commerzbank analysts said in a note the jobs data showed the UK's real economy is not as stable as suggested by stronger than expected first-quarter growth figures published last month. Also complicating the picture was a hotter-than-expected inflation print for April, which at the time dampened the prospect of a delay to cuts from the BoE.
