Rachel Reeves, the UK Chancellor, is facing a difficult situation as the country’s economic watchdog, the Office for Budget Responsibility (OBR), has released its first assessment of the UK’s finances before the Spring spending review.
The OBR found that Rachel Reeves’ decisions could lead to a Budget deficit, breaking a key promise she made. Reeves had promised that day-to-day spending would be covered by taxes, not borrowing. However, the OBR’s forecast suggests the UK might need to raise taxes or cut spending, which could upset many Labour MPs.
The deficit is due to slower economic growth, as confirmed by the Bank of England last week, and higher costs for government borrowing.
Reeves’ first Budget had a £9.9 billion safety net, but recent market changes have likely wiped this out. In January, experts warned that her plan to fund day-to-day spending through taxes was at risk. A Treasury spokesperson insisted this rule was “non-negotiable,” but if the OBR predicts a deficit, spending cuts are expected instead of tax increases.
The OBR also said that if economic growth is lower than expected, Reeves would need to save £20 billion to meet her borrowing rules. Last week, the Bank of England reduced its 2025 growth forecast from 1.5% to 0.75%, citing weaker business and consumer confidence.
Rachel Reeves will present her first Spring Statement on March 26. While she had hoped to avoid major tax changes, the unstable economy may force her to act. Farmers, in particular, are hoping she will reconsider a planned inheritance tax increase.
