OBR Rescues Reeves
- Written by: Gary Howes
File image of Rachel Reeves. Picture by Kirsty O'Connor / HM Treasury.
The OBR - the government's alleged financial watchdog - now appears to have taken pity on the Chancellor.
The UK government will no longer raise income tax rates as the economic outlook has brightened, according to the Office for Budget Responsibility (OBR).
Newswires report that "improved UK forecasts led Reeves to drop the tax hike", as they quote "people familiar with the matter."
Chancellor Rachel Reeves was preparing to raise income tax by 2p in the upcoming November 26 budget, owing to the emergence of a £30BN deficit in her fiscal rules.
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However, she no longer intends to do this, according to a report in the FT released Thursday night.
That hole in the finances was partly as a result of forecast downgrades made by the OBR that implied disappointing tax takes in the coming years.
However, the OBR - the government's alleged financial watchdog - now appears to have taken pity on the Chancellor and has readjusted its forecasts in a more favourable direction.
Notably, it is reported that a crucial productivity downgrade from the OBR has been partially reversed.
Any meaningful tax rise can only come from VAT, NI and income tax, all of which Labour promised it would not touch.
Alex Wickham, Political Editor at Bloomberg, says Reeves received an improved fiscal forecast from the OBR, putting the fiscal hole at £20BN.
"The latest update from the Office for Budget Responsibility moved in a significantly better direction due to the strength of receipts and stronger wage performance," says Wickham.
He reports that Reeves will fill that £20BN gap and then give herself additional headroom against her fiscal rules of between £15BN and £20BN.
That being said, "Reeves’ strategy for budget has not changed and major tax rises are still expected to fill the remaining hole in the public finances," reports Wickham.
Reeves will likely lower income tax thresholds at the budget and raise significant taxes from salary sacrifice schemes, he adds.
