OBR to warn Reeves that economy is even worse than expected – reports

The Office for Budget Responsibility (OBR) is set to deliver a fresh blow to Chancellor Rachel Reeves by downgrading its forecasts ahead of the budget, according to national media reports.

The OBR’s latest draft report, handed to the Chancellor in advance of the November Budget, is said to forecast a £20-30 billion shortfall in the public finances, driven by a combination of downgraded productivity estimates, higher debt interest payments, and the reversal of earlier welfare savings.

The fiscal watchdog’s economists, Richard Hughes, David Miles, and Tom Josephs, are expected to warn that the UK’s prospects are “significantly worse than assumed in March” .

“They are choosing this moment to make those revisions. That’s a challenge for me. But I’m not going to duck that challenge. I will respond to it because it is important that I can give that confidence that we’ll continue to provide economic stability,” Reeves told The Times last week, acknowledging the political and economic headwinds now facing her administration .

Tax rises: All but inevitable

With the government’s fiscal rules already stretched to breaking point, the OBR’s downgrade has made tax rises at the November Budget “all but guaranteed.” City forecasters and think tanks estimate the Chancellor faces a shortfall of between £30bn and £50bn, with the National Institute of Economic and Social Research warning Reeves will need to find up to £50bn in extra taxes or savings to restore her fiscal headroom.

While the Chancellor has pledged not to raise income tax, employee national insurance, or VAT, the Treasury is reportedly considering a range of alternative measures. These include extending the freeze on income tax bands, raising taxes on pension pots and dividends, and - crucially for the property market - reforming stamp duty and introducing new property taxes .

Stamp duty and property Tax: A sector in the crosshairs

Among the most closely watched proposals is the potential replacement of Stamp Duty Land Tax (SDLT) with a national property tax, targeting homes above £500,000. Under the mooted system, tax would be calculated based on the final sale price and duration of ownership, adding complexity and uncertainty to transactions .

For mortgage brokers, the implications are profound. A rush to complete purchases ahead of any changes could provide a short-term boost, but the longer-term effect may be to dampen activity, particularly in London and the South East where higher-value properties would bear the brunt. “Any threshold-based tax system risks deepening regional disparities,” warns one property lawyer, with affluent areas facing disproportionate burdens.

Landlords, too, are bracing for impact. The government is considering an 8% National Insurance levy on rental income, a move that would “place a heavy burden on landlords” and could reduce the supply of rental properties, driving up costs for tenants and shrinking the pool of buy-to-let transactions for brokers.

Euan Stewart, of The Perth Mortgage Centre, sees pressure building and potential shift to portfolio landlords. “If these [budget] ideas come to fruition, I expect a shift towards more professional landlords, who can absorb the increased costs and associated admin.” Still, he said, “well-managed HMOs (House in Multiple Occupation) can deliver strong yields, especially near universities.” 

Steve Cox, of Fleet Mortgages, added that many landlords may be re-evaluating their role in the sector. “I think a lot of people were actually [in buy-to-let] to enjoy capital growth, because that’s the way the market carried them, as opposed to being a landlord long term with yield.” For those landlords, upcoming legislation like renters’ rights could be the final push. “Possibly, some people will give up. They’ll say, I can’t be bothered with this. It’s too complicated, too much hassle.”