Former chancellor Jeremy Hunt has hit back at suggestions that the Office for Budget Responsibility (OBR) and past Tory tax cuts are to blame for Labour’s worsening fiscal position, calling the claim “ridiculous” and accusing Chancellor Rachel Reeves of presiding over a self-inflicted economic squeeze.
The rebuke comes amid reports of mounting anger inside Downing Street after the OBR signalled it would downgrade productivity forecasts ahead of next month’s Budget — creating an estimated £27 billion shortfall and forcing Ms Reeves to consider a mix of tax rises or spending cuts to plug the gap.
The downgrade is expected to knock 0.3 percentage points off productivity growth assumptions, deepening the Chancellor’s headache as she prepares her first full Budget under strict fiscal rules.
Ms Reeves and Sir Keir Starmer are said to believe the downgrade reflects the long-term impact of Conservative policy failures dating back to the post-financial crisis era and Brexit. But Mr Hunt said the current crisis was one of Labour’s own making.
“It is ridiculous to blame the OBR and tax cuts that grew the economy when Labour’s tax rises actually shrunk it,” he told reporters. “Rather than trying to find someone to blame, they need to start getting a few decisions right.”
As chancellor, Mr Hunt cut National Insurance contributions twice ahead of last year’s election at a cost of £20 billion. Ms Reeves has since imposed a £25 billion increase in employers’ National Insurance, part of a broader fiscal tightening that economists say has pushed the UK tax burden to a record high.
The Chancellor has been left with only £9.9 billion of headroom against her fiscal targets — the smallest margin in more than a decade, and well below the £20–30 billion cushions maintained by previous governments.
Economists now estimate that Ms Reeves faces a £35 billion black hole in her upcoming Budget, limiting her ability to deliver on spending commitments without further tax hikes.
She insisted the OBR’s projections reflected “past productivity numbers” rather than any deterioration under Labour, noting that UK productivity had been “very poor” since 2008 and had worsened after Brexit.
However, Helen Miller, deputy director of the Institute for Fiscal Studies (IFS), said the government’s predicament was largely self-inflicted.
“Having the very, very small headroom Rachel Reeves has given herself does lead to instability, because completely run-of-the-mill forecast changes can knock you off course,” Miller told peers on the House of Lords Economic Affairs Committee.
“Speculation and uncertainty around upcoming tax increases are directly damaging, because firms don’t invest when they’re not sure what’s going to happen.”
She added that by sticking with the tight fiscal rules introduced by Mr Hunt, Ms Reeves had left herself with “no margin for error.”
The Confederation of British Industry (CBI) has also warned that uncertainty surrounding the Budget is weighing heavily on corporate confidence.
“Uncertainty around the upcoming Budget is weighing heavily on sentiment, with many firms keeping key decisions on hold until more clarity is forthcoming,” said Alpesh Paleja, the CBI’s deputy chief economist.
“Cost pressures remain strong, with last year’s tax rises adding to the drag. The private sector cannot bear the brunt of further tax increases for a second Budget in a row.”
Business taxes are already at their highest level in 25 years, and several industry groups have urged the Treasury to prioritise stability over new fiscal tightening.
Former chancellor Lord Lamont echoed those concerns, warning that speculation over “headroom” and tax changes had become “terribly, terribly destabilising.”
“The swings that you get in public finance are absolutely ginormous,” he told peers. “We seem to have ended up with a situation that is very unstable.”
The Treasury declined to comment ahead of the OBR’s full forecast, due to be published on November 26, but insisted that fiscal decisions would be taken “in the national interest.”
With borrowing costs still elevated and business sentiment fragile, next month’s Budget represents a defining test of Rachel Reeves’ credibility as Britain’s first female Chancellor.
The combination of a weak productivity outlook, constrained fiscal headroom and tax fatigue across both households and firms has left the government with little room to manoeuvre.
While Ms Reeves insists her approach will deliver “stability after chaos”, critics argue the policy mix risks stifling growth at a time when business investment remains anaemic and inflationary pressures persist.
As one City economist put it this week: “The problem isn’t the OBR. It’s arithmetic.”
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‘Ridiculous’ to blame OBR for Budget mess, says Hunt