Steeper UK productivity cut of more than 20bn makes tax rises more likely

"Our independent forecaster is likely to downgrade the forecast for productivity in the UK based not on anything this government has done, but on our past productivity numbers, which, to be honest, since the financial crisis and Brexit have been very poor, and that just shows how essential growth is. So I'm not going to do anything in the budget that reduces our opportunities to grow the economy. That's very important."

"The estimated impact is based on calculations by the Institute for Fiscal Studies (IFS) thinktank, first reported in the Financial Times, which has said that each 0.1-percentage-point downgrade to productivity would increase public sector net borrowing by 7bn in 2029-30. That suggests that a 0.3-point reduction could result in a 21bn hit to the public finances. Some analysts had been forecasting a 0.1 to 0.2-point downgrade in the OBR's productivity outlook, resulting"

The Office for Budget Responsibility plans to cut trend productivity growth by 0.3 percentage points for the next five years after downgrading the UK's economic momentum since 2008. The downgrade reduces the forecast of how effectively workers can do their jobs and weakens economic growth projections. The change could widen public sector borrowing by around £21bn, based on Institute for Fiscal Studies calculations that each 0.1-point downgrade raises borrowing by about £7bn in 2029-30. The potential hit increases the likelihood that manifesto pledges not to raise income tax, VAT or national insurance could be broken.

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