On the eve of a pivotal Autumn Budget, Chancellor Rachel Reeves has declared her intention to "defy" the increasingly grim economic forecasts facing Britain, even as official projections signal a deeper hole in the nation’s finances than previously anticipated. With the Office for Budget Responsibility (OBR) expected to downgrade its outlook for UK productivity by 0.3 percentage points—a move that could add more than £20 billion to the government’s fiscal shortfall—Reeves faces mounting pressure to chart a path that avoids both austerity and unchecked borrowing, all while keeping her party’s promises and the public’s trust.
Speaking candidly in The Guardian this week, Reeves acknowledged the scale of the challenge ahead. "Those conclusions [by the OBR] will be delivered at the budget next month and I am not going to pre-empt them. But I am going to be candid now that the productivity performance we inherited from the previous Conservative government and since the financial crisis has been too weak," she wrote, according to BBC reporting. The productivity downgrade, first reported by key government sources and echoed across major outlets such as The Independent and The Daily Mail, is poised to create a fiscal gap that could force the Chancellor’s hand on tax rises, spending cuts, or both.
The Institute for Fiscal Studies (IFS), a respected economic think tank, has calculated that for every 0.1 percentage point cut in the productivity forecast, government borrowing would rise by £7 billion in 2029-30. The anticipated 0.3 point downgrade could therefore add as much as £21 billion to the budgetary black hole. The IFS has been blunt in its assessment: Reeves will "almost certainly" have to raise taxes to meet her self-imposed fiscal rules, especially after a series of government U-turns on welfare cuts and winter fuel payments have further constrained her options.
Yet Reeves remains adamant that she will not simply accept the bleak outlook. "I am determined that we don’t simply accept the forecasts but we defy them, as we already have this year," she insisted in her Guardian article. Her approach, she says, is rooted in investment rather than retrenchment: "If productivity is our challenge, then investment is our solution." She listed pledges to invest in the NHS, roads, rails, energy, and defence as the means to "get Britain building," signaling a clear break from the austerity policies of the past decade.
The Chancellor’s stance is not without its critics, both within and outside Parliament. Shadow chancellor Mel Stride, for instance, took to social media to argue, "This isn't about events or excuses. It's about choices. And the Chancellor is making the wrong ones. Rachel Reeves will tax your future to pay for her failure." Former Conservative chancellor Sir Jeremy Hunt, writing in The Times, described the OBR’s productivity downgrade as a "hammer blow to Rachel Reeves' numbers" and called for sweeping public sector reform to boost productivity and ease fiscal pressures.
Much of the current fiscal bind, Reeves argues, is the legacy of decisions made long before Labour took office. She has repeatedly cited the effects of austerity, Brexit, and the Covid-19 pandemic as having left "deep scars on the British economy that are still being felt today." As she explained, "Austerity, a chaotic Brexit and the pandemic have left deep scars on the British economy that are still being felt today." Yet she is quick to add that her focus is on the future, not the past: "The task facing our country – facing me as Chancellor – is not to relitigate the past or let past mistakes determine our future."
Despite her resolve, the arithmetic of the Autumn Budget is unforgiving. Reeves has already ruled out a "return to austerity" and appears equally resistant to increasing government borrowing, arguing that "investment cannot come at the cost of economic responsibility." As she put it, "There is nothing progressive about a Labour government using nearly £1 in every £10 of public money it spends on financing debt interest." Without the option of deeper spending cuts or significant new borrowing, tax rises seem all but inevitable. Speculation is rife that Reeves may break Labour’s manifesto pledges and raise income tax, with a so-called "mansion tax" also reportedly under consideration.
Some of the pressures Reeves faces are the result of her own government’s policy reversals. The partial reversal of the winter fuel allowance cut, U-turns on welfare spending, and the expected end of the two-child benefit cap have all added to the fiscal strain. The IFS estimates that Reeves will need to find £22 billion in tax rises or spending cuts just to restore the £10 billion of headroom she previously left herself against her debt targets. Other economists have warned that the true budgetary gap could be as high as £50 billion, depending on the trajectory of borrowing costs, inflation, and growth.
Meanwhile, the broader economic context remains challenging. Growth has been sluggish since Labour came to power, and some business leaders have blamed Reeves’s earlier tax rises—such as the increase in National Insurance for employers—for dampening business investment and job creation. Households, too, are feeling the pinch, with the cost of food and energy continuing to climb. This week, the UK’s major supermarkets warned that food prices could rise even further if higher taxes are imposed on the sector.
Despite these headwinds, Reeves has sought to reassure working families that she understands their concerns. "I don't need a spreadsheet to tell me that too many working people in Britain feel the economy is unfair and does not work for them, with the cost of living still bearing down on family budgets," she wrote. She emphasized that the decisions she will make at the Budget "don't come for free and they are not easy, but they are the right, fair and necessary choices."
With the Budget scheduled for November 26, 2025, all eyes are on the Chancellor as she prepares to unveil her fiscal strategy. The stakes are high—not just for the Labour government, but for the millions of Britons whose livelihoods depend on the direction Reeves chooses. As the OBR’s forecasts loom and political opponents sharpen their criticisms, one thing is clear: the choices made in the coming weeks will shape the UK’s economic trajectory for years to come.
In a climate of uncertainty and tough trade-offs, Reeves’s promise to "defy" the forecasts is both a rallying cry and a gamble. Whether her blend of investment, fiscal discipline, and tax reform can deliver for Britain remains to be seen—but the nation will be watching closely.
