Former Chancellor Jeremy Hunt has hit back at suggestions that the Office for Budget Responsibility (OBR) and previous Tory tax cuts are to blame for Labour's worsening fiscal position, branding the claim “ridiculous” and accusing Chancellor Rachel Reeves of presiding over a self-inflicted economic crisis.
The rebuke comes amid reports of growing anger inside Downing Street after the OBR hinted at slashing productivity forecasts ahead of next month's Budget – which would lead to an estimated £27bn shortfall and force Ms Reeves to consider a mix of tax rises or spending cuts to bridge the gap.
The downgrade is expected to reduce productivity growth estimates by 0.3 per cent, adding to the Chancellor's headache as she prepares her first full budget under tight fiscal rules.
Ms Reeves and Sir Keir Starmer are said to believe the downgrade reflects the long-term impact of Conservative policy failures in the post-financial crisis era and post-Brexit. But Mr Hunt said the current crisis was of Labor's own making.
“It's ridiculous to blame the OBR and the tax cuts that boosted the economy when Labour's tax rises actually shrunk the economy,” he told reporters. “Instead of trying to blame someone, they need to start making some decisions right.”
As chancellor, Mr Hunt cut national insurance contributions twice before last year's election, at a cost of £20 billion. Ms Reeves has since increased Employers' National Insurance by £25bn, part of wider fiscal tightening which economists say has pushed the UK's tax burden to record highs.
The Chancellor has only £9.9 billion of headroom left to meet his fiscal targets – the smallest margin in more than a decade, and significantly less than the £20-30 billion range created by previous governments.
Economists now estimate that Ms Reeves faces a £35bn black hole in her upcoming budget, which will limit her ability to meet spending commitments without further tax rises.
He stressed that the OBR's projections reflect “past productivity numbers” rather than any decline under Labour, noting that Britain's productivity had been “much worse” since 2008 and had become even worse after Brexit.
However, Helen Miller, deputy director of the Institute for Fiscal Studies (IFS), said the government's predicament was largely self-inflicted.
“The very little headroom that Rachel Reeves has given herself is bound to lead to instability, because completely chaotic forecast changes can throw you off course,” Miller told peers on the House of Lords economic affairs committee.
“Speculation and uncertainty about upcoming tax increases is directly harmful, because companies do not invest when they are not sure what is going to happen.”
He said that by sticking to the strict fiscal rules introduced by Mr Hunt, Ms Reeves had left herself “no margin for error”.
The Confederation of British Industry (CBI) has also warned that uncertainty over the budget is weighing heavily on corporate confidence.
“Uncertainty over the upcoming budget is weighing on sentiment, with many companies holding off on important decisions until there is more clarity,” CBI Deputy Chief Economist Alpesh Paleja said.
“Cost pressures remain strong, compounded by last year's tax hikes. The private sector cannot afford to bear the brunt of more tax hikes in a second consecutive Budget.”
Business taxes are already at their highest level in 25 years, and many industry groups have urged the Treasury to prioritize stability rather than new fiscal tightening.
Former Chancellor Lord Lamont echoed those concerns, warning that “headroom” and speculation over tax changes had become “very, very destabilizing”.
“The fluctuations you get in the public finances are absolutely enormous,” he told colleagues. “It seems like we've got into a situation that is very unsustainable.”
The Treasury declined to comment ahead of the OBR's full forecast to be published on 26 November, but insisted fiscal decisions would be taken “in the national interest”.
With borrowing costs still elevated and business sentiment fragile, next month's budget represents a decisive test of Rachel Reeves's credibility as Britain's first female chancellor.
The combination of the weak productivity outlook, limited fiscal headroom and tax fatigue among both households and firms has left the government with little room for manoeuvre.
While Ms Reeves insists her approach will provide “stability after chaos”, critics argue the policy mix risks stunting growth at a time when business investment remains weak and inflation pressures persist.
As one City economist said this week: “The problem isn't the OBR. It's the arithmetic.”
jamie young
Jamie is a senior reporter at Business Matters, with over a decade of experience in UK SME business reporting. Jamie has a degree in Business Administration and regularly attends industry conferences and workshops. When Jamie is not reporting on the latest business developments, he is passionate about mentoring budding journalists and entrepreneurs to inspire the next generation of business leaders.
