Measures unlikely to boost economic growth over the next five years, says OBR

Labour has embarked on a "large, sustained increase in spending, tax and borrowing", according to the government's economic forecaster, as it judged that Labour's first budget for 15 years is unlikely to increase economic growth over the next five years.

- Phillip Inman

Assessing Rachel Reeves's policies, the Office for Budget Responsibility (OBR) said the economy would expand at the same rate as predicted in March by the end of the parliament, despite a £70bn-a-year rise in spending.

The extra spending announced by Rachel Reeves would give a short-term lift to economic output, it said, but leave the average rate of growth over the next five years unchanged.

A change in the budget rules that allows for a spending increase will swell the size of the state to 44% of annual national income, five percentage points higher than before the pandemic.

Richard Hughes, the head of the OBR, said the effect of an increase in taxes of £40bn would push the tax take each year as a proportion of national income to a historic high of 38% by 2029-30.

Hughes said: "Against a largely unchanged economic and fiscal backdrop since our last forecast in March, this budget delivers one of the largest increases in spending, tax and borrowing of any single fiscal event in history."

The larger state will "crowd out" business activity and business investment, the OBR said, pushing living standards down by about 1% in the last year of its five-year forecast.