Summary
The UK government is considering raising taxes because productivity growth forecasts are expected to decrease. Lower productivity means the economy grows slower, leading to lower tax revenue, which pressures the government to find ways to cover its expenses. Slow productivity growth has been an issue in the UK since the financial crisis, with various factors contributing to it.
Key Facts
- Chancellor Rachel Reeves may increase taxes in the upcoming Budget due to lowered productivity forecasts.
- The Office for Budget Responsibility (OBR) has reduced its UK productivity growth forecast.
- Productivity measures how much the economy produces per hour of work.
- Lower productivity growth can result in less GDP growth and lower tax revenue.
- Each 0.1% point drop in productivity growth could increase projected borrowing by £7 billion in 2029-30.
- Since 2010, UK productivity has grown by only 0.4% a year on average, much lower than the previous average of 2% from 1971 to 2009.
- The UK's productivity slowdown is similar to other advanced countries but is notably worse compared to some, like Germany and Japan.
- Factors like the financial crisis and past austerity measures may have contributed to the UK's weak productivity growth.
