Treasury weighs £30bn in tax hikes as Budget looms; OECD and OBR pressure Reeves

The Treasury is examining as much as £30 billion in additional tax revenue for the Budget, according to multiple outlets and government officials familiar with the discussions. While insiders stress the number is provisional and could shift before the Budget is delivered, the direction signals a heavier tax take as Chancellor Rachel Reeves seeks to close a large gap between planned spending and expected receipts. The development comes as officials prepare for a Budget that could push the total tax burden higher by roughly £70 billion over about 13 months when paired with last year’s package, even as households and businesses grapple with elevated prices and a sluggish economy.

Opening Revolut’s new London headquarters this week, Reeves acknowledged that productivity has lagged for years, saying, "for too long, Britain has been the laggard of productivity performance." Her remarks came as the Treasury weighs the scale of revenue-raising measures needed to support a broader plan for change. The front-line pressure is being sharpened by the Office for Budget Responsibility’s anticipated downgrades to productivity forecasts, which officials expect will complicate the Chancellor’s balancing act.

The numbers come as the Resolution Foundation, a Labour-friendly think-tank, has floated a range of options designed to raise sums commensurate with the scale Reeves is said to be preparing to confront. Proposals include extending the freeze on tax thresholds by another two years, which could raise about £7.5 billion, and widening the tax base with levies on items from everyday snacks to long-haul flights and pensions. The Foundation also suggested tightening small-business VAT rules, potentially lowering the threshold from £90,000 to as low as £30,000, a move that would bring more firms into the VAT net and add red tape for sole traders.

Market-facing indicators have reinforced a picture of an economy under strain. The OECD’s latest global outlook warned that price pressures in the United Kingdom would outpace most of its peers this year, with inflation being higher than in other major economies and the UK recovering slower than expected. It forecast the UK would grow by about 1.4% this year before easing to around 1% in 2026, a trajectory that could be tempered further by ongoing tax and spending adjustments. The OECD also cautioned that global growth would soften in the second half of the year as higher U.S. tariffs begin to bite and trade costs rise, complicating both export activity and domestic demand.

On the domestic front, the S&P Global flash UK PMI showed private-sector growth slowing to 51.0 in September, the weakest reading in four months and a drop from 53.5 in August. The release underscored pressures from higher business costs and softer demand, with economists warning that the data may be a bellwether for a stall in broader activity. The PMI figures align with a broader narrative of rising costs and a cooling economy, which could complicate Reeves’s aim of delivering growth that works for working people.

The OECD’s interim outlook also underscored broader global risks. It warned that growth in the world economy would weaken as the year progresses, partly due to tighter fiscal stances and rising trade costs. In a country-by-country note, the OECD highlighted that while the UK had shown pockets of resilience in the year’s first half, sustained gains would be contingent on a more productive and dynamic economy. Chancellor Reeves responded by arguing that the UK remains one of the fastest-growing G7 economies in the first half of 2025, though she acknowledged that more needed to be done to lift productivity and expand opportunity.

Shadow Chancellor Sir Mel Stride seized on the OECD findings to argue that Reeves’s approach risked keeping Britain in a cycle of high tax and slow growth. He contended that Labour’s plan would push the economy toward stagflation, urging the Chancellor to recalibrate policy away from taxation as the primary lever for growth. Officials, however, pointed to the long-run aim of investment and reform as essential to unlocking higher output, even as immediate budgetary pressures require difficult choices.

Beyond the budgetary arithmetic, the government faces a broader macroeconomic backdrop. The OECD’s inflation projections suggested that price pressures could stay elevated next year, with food inflation contributing to the cost of living challenges. The Bank of England’s inflation target remains elusive, and market participants will be watching for any policy signals that might shift the balance between fiscal consolidation and growth support.

In the near term, Reeves and her colleagues are operating under a timeline that includes a November 26 budget forecast horizon, with sources saying the tax-raising measures under consideration could evolve as the OBR’s productivity outlook is updated. As the debate intensifies, the broader question for investors and businesses remains whether the government will lean more heavily on revenue-raising measures, extend existing levies, or pursue targeted reforms that could bolster productivity without triggering a fresh round of demand suppression.

The convergence of higher taxes, productivity downgrades, and cooling private-sector momentum creates a complex backdrop for the Budget. If the £30 billion figure remains on the table, it would require a careful calibration of revenue-raising policies with growth-supportive measures aimed at improving competitiveness and living standards. With inflation still running above the Bank’s target and global conditions uncertain, the path before Reeves’ team is likely to be a tight one, demanding careful messaging and precise policy design to avoid tipping the economy into a steeper slowdown.