Revised growth forecast leaves Reeves in trouble

Chancellor under pressure to hike income tax at Budget

- DAVID MADDOX POLITICAL EDITOR

Rachel Reeves has been dealt a blow by the Budget watchdog as it slashes estimates on a key economic indicator for the UK, raising fears the chancellor will need to hike taxes.

On the eve of the Labour Party conference in Liverpool, The Independent can reveal that the chancellor has been told the Office for Budget Responsibility (OBR) will substantially reduce its estimates for productivity in the economy - which will lead to even lower economic growth.

It means Ms Reeves will need to find even more money to balance the books, just weeks before her crucial Budget in November, putting further strain on the manifesto commitment not to raise one of the three big taxes - income tax, VAT or national insurance contributions from employees.

She will also be left with a Budget deficit in 2030 which, economists warn, means she has to raise taxes even higher than previously thought.

The chancellor is pushing for the OBR to pin the blame on 14 years of Conservative government and previously “over optimistic” estimates by the body, in a bid to reduce the political damage.

The OBR has been under pressure to ensure it is clear that none of Ms Reeves’s measures in government - including £30bn of tax rises in the last Budget - are to blame for its revision downwards for productivity.

A senior source told The Independent: “The OBR will make it clear that the revision has nothing to do with any of the measures brought in by this government.” The chancellor is already struggling to fill a £40bn black hole and sources close to Ms Reeves have admitted the political impact of the renewed forecast ahead of her Budget “will be deeply unhelpful” and that she is braced for an onslaught from opposition parties.