As Rachel Reeves does her maths ahead of the 26 November Budget, she will hope that Labour’s policies have delivered enough growth to limit the number of tax hikes needed to restore her £9.9bn fiscal headroom.

The fiscal black hole facing the Treasury could be between £20bn and £30bn due to higher borrowing costs, productivity revisions and new spending commitments, according to think tanks and City economists. 

But the scale of this shortfall will depend on how the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), scores the country’s economic growth. Its expected productivity downgrade due to an ongoing supply side review could further deteriorate public finances. 

The OBR currently estimates that growth will sit at 1.9 per cent in 2026, but it has been criticised for having “unrealistic expectations” compared to other, less optimistic forecasters.

The final growth forecasts which the OBR hands Reeves ahead of the November Budget will be key in dictating the amount of tax hikes her Treasury will need to make to balance the books.

The Labour government has put growth as its number one mission, having unveiled various policy packages since the spring which it claims will boost the UK’s economy. 

But other policy decisions – including the U-turns on welfare forced by rebel Labour MPs – are likely to force Reeves to find extra cash.

Several analysts have warned that various growth-forward commitments – particularly infrastructure projects such as Heathrow’s third runway – are unlikely to boost the economy within the 5-year period covered by the OBR’s forecast.

Here are the government’s key policies and the impact they are likely to have on the growth figures informing next month’s budget.

Planning reforms

A slate of new pro-building measures were announced this week as the government tries to convince the OBR that it is committed to encouraging growth.

Rachel Reeves has ordered courts to open judicial reviews over objections to critical infrastructure projects within four months, to prevent developments being held “to ransom”.

Separately, the government is tabling last-ditch amendments to its planning and infrastructure bill, including powers for the secretary of state to stop councils from blocking planning permission.

The OBR judged the initial bill to be positive for the economy as it raised forecasts for GDP growth in 2029-2030 by 0.2 percentage points, with the main benefit set to come through extra house building as regulatory costs are slashed for constructors. 

But the legislation has since been watered down due to amendments related to environmental protection.

Planning experts believe that this week’s reforms are unlikely to lead to immediate growth unless they cause specific new infrastructure to be built quickly. 

Some reforms to judicial review processes are also subject to “discussions” with the High Court, which is unlikely to be considered by the OBR given there is no concrete change coming. 

Stretched construction capacity in the UK means that more strategic planning reform is needed to turn this policy into actual investment, property developers at Turner & Townsend said.

While the OBR upgraded its growth forecast in March as a result of the initial planning bill, it is unlikely that these new reforms will have the same effect, according to James Smith, UK economist at ING.

Score: Good for growth

Employment Rights Bill

The Employment Rights Bill is Labour’s flagship workers’ rights reforms. 

It is set to offer ‘Day One rights’ to workers, allowing them to sue employers for unfair dismissal from the first day on the job. 

There will also be tighter rules on zero hours contracts as businesses will be forced to offer workers guaranteed shifts. 

Trade union powers will also be strengthened as the bill looks set to scrap a minimum 50 per cent turnout requirement for strike ballots. 

Union members and the left-leaning think tank Resolution Foundation have labelled the bill a “big deal” for improving working conditions and helping low-paid workers. 

But several economists and business groups including the British Chambers of Commerce and the Institute of Directors have joined forces to warn that the bill could have a “chilling” effect on hiring and dampen growth. 

In March, the OBR did not make a full assessment on the economic impacts of the bill but it said it would have a “material and probably net negative effect”. 

Given the bill is nearing royal assent and the new business secretary Peter Kyle has pledged to protect it from amendments, the OBR looks set to take a view on the damage it would inflict on the UK economy. 

Score: Bad for growth 

Pension pot reforms

The government announced a wide range of reforms to the pension system in June, which Liz Kendall, then work and pensions secretary, and Torsten Bell, a pensions minister in the Treasury, claimed would protect pensioners and drive economic growth. 

Some proposals include the consolidation of small pension pots and the introduction of incentives that highlight performance of returns, encouraging pension schemes to take more risks for “good value”. 

The Mansion House Accord, which saw pension funds make a non-binding agreement to invest five per cent of assets in private British companies, could also boost investment in the UK.  

The Association of British Insurers claimed a previous pension fund agreement struck under former Chancellor Jeremy Hunt has created £1.6bn of extra investment in unlisted equities. 

But Stephen Millard, deputy director for macroeconomics at the National Institute for Economic and Social Research (NIESR), said that pension reforms are unlikely to boost growth figures in the near-term. 

Changes in the government’s pensions bill could, however, be vital for protecting public finances given the sway large pension funds can have over gilt trading. 

Millard told City AM: “State pensions are going to get increasingly expensive, and reforming that is a good thing, and it will help public finances. But it’s not going to do that much that quickly.”

City traders have called for the government to address a bigger problem for public finances: the triple lock pension. With the state pension set to raise more than previously expected given high wage growth, Reeves could face higher costs at this year’s Budget. 

Score: Good for growth, but only in the long-term 

Trade deals with the EU, US and India

While the Prime Minister secured a trio of international trade agreements this year, experts warn that their economic benefits will be small and gradual.

The £6bn UK-India trade deal will add 0.13 per cent to the economy by 2040, which is unlikely to affect OBR forecasting at this budget. 

The UK-EU reset deal signed in May will boost GDP by more than double this figure in the same period, according to an Economics Observatory report, and initial changes are only set to come in a few years. 

While the OBR can “more or less forget about” the India deal, the EU agreement will make exporting more attractive for British business but is still unlikely to be a “game changer on growth,” according to Iain Begg, a professorial research fellow at LSE.

The US trade deal – which secured lower rates of tariff for various UK industries including aerospace and cars – will also have a measurable but small impact on growth. 

The deal also looks set to soften some of the damage tariffs could inflict on the UK economy, with British pharmaceutical companies hoping to be given “preferential treatment”. 

But President Trump has been up his attacks on major trading partners and industries in recent weeks, which could deepen the pain felt by UK businesses. 

A report by the Economics Observatory predicted: “Large wider economic effects seem unlikely as the sectors in the deal represent a relatively small proportion of overall UK trade.”

Score: Good for growth

Industrial strategy 

The government launched its industrial strategy in June, which includes a pledge to cut energy bills by 25 per cent for over 7,000 businesses. 

The price cut scheme, which is due to start in 2027, will be funded through a deal struck with the EU, according to the government. 

A whole set of pledges on prioritising growth in specific sectors such as clean energy and AI, plus ambitions to boost exports and investment across startups, could still lift morale across the private sector should changes be implemented. 

It is not clear whether the economic benefits of this strategy will feature within the 5-year OBR forecast period given proposals are set out across a 10-year period. 

Millard said: “There’s a lot in there that will help growth. But the real question is: how quickly is it going to kick in? That’s the real difficulty.”

Score: Good for growth but only in the long term

Deregulation in the City

In July, the Chancellor unveiled the “Leeds reforms,” designed to cut red tape across the financial services sector, a crucial sub-section of the government’s wider industrial strategy. 

In a snappy speech in July, Rachel Reeves claimed regulation had been the “boot on the neck” of businesses as she vowed to reduce administrative costs for top investors.

Changes include stripping powers from the Financial Ombudsman Service, which settles complaints between consumers and banks, and increasing high loan-to-income mortgages for house buyers. 

Reeves is also drawing up plans for a retail investment campaign to get Brits to own stocks and shares. 

Industry figures have welcomed the reforms, which they say will boost the economy by encouraging overseas companies to trade with the UK. 

Alex Ellerton, head of financial services at Grant Thornton, said the measures will create a “nurturing and attractive environment for overseas investment”.

The OBR may choose to take a cautious view on what cutting red tape in the financial services sector would mean for growth as the direct effects are somewhat unclear. 

There are some signs of optimism in the City as banking lawyers revealed this week that they have already seen an uptick in recruiting due to the measures.

The government is also looking to crack down on late payments, which industry groups claim is stifling investment across small businesses. 

Cutting red tape for financial services is a key part of government efforts to reduce the regulatory burden on firms by 25 per cent in the next five years, as business secretary Peter Kyle said in September. 

The irony is, of course, that the Employment Rights Bill is set to add significant regulation on businesses in the coming years. 

Score: Good for growth, but near-term benefits may be negligible

Defence spending

Bold defence spending has been a key commitment of this Labour government.

The UK is committed to spending 2.5 per cent of GDP on defence by 2027, before raising this again to 5 per cent by 2035. 

The government believes that this investment will benefit jobs, wages and economic growth as well as national security, but this claim has been disputed by some economists.

An Institute for Fiscal Studies (IFS) report said that increased borrowing to fund this defence spending would be unsustainable and that it was “hard to justify on the grounds that defence spending will boost long-term economic growth”.

But the London School of Economics’ Professor Begg told City AM that more investment in defence innovation could still stimulate the private sector. 

He said: “If defence innovation leads to ideas that come into the private sector and generate new products it is potentially positive. 

“The US is the prime example of this, where, over decades, heavy US investment in defence has benefited major producers in the US.”

Score: Uncertain for growth

Immigration

Announcing the government’s plans to clamp down on net migration, the Prime Minister dismissed claims that lower migration would stifle growth as he called for a reset for how immigration debates contribute to economic planning.

In major changes, the government said it would raise salary thresholds for skilled workers, end the special visa route for care sector workers and lengthen the time period before migrants can gain indefinite leave to remain. 

The government is also set to add further restrictions on the student visa, cutting the time individuals can spend in the UK after they finish their studies. 

Forecasters agree changes could lead to lower net migration levels than seen in previous years, which could limit GDP growth and leave tax receipts exposed. 

But higher salary thresholds mean the number of fiscal contributors, otherwise people who pay more in tax than they receive from the state in areas such as welfare or health, could be a net positive. 

The OBR is likely to face intense scrutiny over its immigration modelling following the ‘Boriswave’, with some MPs and think tanks suggesting high levels of net migration during the Boris Johnson years could be a drain on public finances as more individuals gain rights to benefits. 

Labour’s own changes in the white paper, however, may be ignored by the OBR given most proposals may not have been laid out before parliament before the Budget. 

Its wider impacts on growth are also more uncertain as economists have struggled to model migration policies’ effects on tax receipts, productivity and growth in living standards. 

Millard said that the new rules make it harder for skilled workers to enter the UK, which he said could have a negative impact on growth figures. 

Hospitality industries in particular, he added, may be facing higher costs and slower growth because of a restricted access to migrant labour.

Score: Uncertain for growth

Rachel Reeves hopes defence can boost growth.(Photo by Dan Kitwood/Getty Images)

Welfare U-turns 

The costs incurred by government climbdowns over the Winter Fuel payment and the welfare bill could require spending cuts of £6bn at the budget, according to a report published last week.

The plans under the welfare bill were part of a government mission to get more Brits into the national workforce and reduce inactivity levels, thereby boosting the jobs market and tax receipts. 

The OBR did not score the impacts of welfare reforms before they were binned as proposals were set out at too late notice. 

The costs of the U-turns on public finances now mean Reeves will be hoping for an optimistic growth rating from the OBR to allow her to avoid difficult decisions over tax rises, which is set to hamper growth. 

There is also scant detail on how the Labour government plans to restrict spending on welfare and encourage more Brits to work, though it has been suggested that Keir Starmer could re-open the thorny issue of making welfare savings in the weeks before the Budget. 

Score: Bad for growth

Youth employment scheme

The government’s pledges to tackle youth unemployment with apprenticeships and work placements could offer a small boost to the OBR’s growth forecast.

Work and pensions secretary Pat McFadden has pledged to double the number of people on apprenticeships or technical courses by 2040.

Last month, Reeves guaranteed that every young person not in education or employment that has been receiving benefits for at least 18 months will be offered a paid work placement. 

Sam Avanzo Windett, deputy director at the Learning and Work Institute, told City AM that the placement scheme could have a positive impact on growth if it is guaranteed that these young people will stay in the workforce.

Avanzo Windett said further detail was needed on how the government would support young people and whether permanent positions would be offered, otherwise the OBR is unlikely to score this policy in its growth forecast. 

Score: Negligible for growth unless tied in with other welfare reforms

Tech and AI investment

Reeves hailed a “powerful vote of confidence in the UK economy” when she toured Google’s new $1bn Hertfordshire data centre last week.

This investment, as part of £31bn pledged by tech firms during US President Donald Trump’s state visit, has been touted by the government as a huge boost for the economy. 

But, like measures taken to loosen planning policy, this tech cash depends on the ability of the country’s infrastructure to turn promises into material GDP growth. 

Variables including energy grid capacity and water usage could undermine government efforts to boost productivity. 

Richard Whittle, professor of AI and public policy at Salford University, said that this investment is a gamble on the country’s ability to quickly upgrade infrastructure to support it. 

He told City AM: “All the recent government AI deals may well show up in growth figures, they are after all significant investments in AI infrastructure. 

“The bigger question is whether they will show up as and catalyse longer term growth or simply exist as a one shot investment.”

The government itself is also relying on AI and technology to drive productivity in the public sector, including through the planned digital ID for all Britons. 

HMRC and the NHS have been singled out as bodies that could benefit from an upgrade to internal systems and faster processing but top economists have warned in recent days that an over-reliance on AI could significantly underwhelm governments and business leaders. 

Score: Good for growth

Business rates and high street reforms

The Treasury is exploring options to make business rates fairer to avoid taxing smaller firms unequally in a set of “pro-growth” reforms it has floated in the run-up to the Budget. 

And in a move aimed at encouraging growth in the nightlife sector, the government is also set to allow pubs and bars to open later by losing licensing conditions. 

Business leaders’ skepticism of the potential positive impacts may reflect the gloominess felt across the retail and hospitality sectors. 

The trade body UKHospitality welcomed this move, but said that these changes are “not a silver bullet to solve the existential cost challenges hospitality businesses are facing”. 

Its chair Kate Nicholls told City AM that the Treasury must lower business rates if it wants to allow for growth, as well as cutting VAT for businesses and reforming NICs.

Score: Negligible for growth given existing high street struggles

UK high streets have suffered from added costs.

Lifting two-child benefit cap 

While the government is yet to formally announce its decision to scrap the two-child benefit cap, this measure is widely expected to be included in the budget.

If announced as part of the budget, the OBR will provide an estimate as to how much this decision will cost the Treasury. 

Lifting the cap in its entirety would cost £3.5bn according to the Resolution Foundation – a price tag which would force Reeves to find more cash despite fiscal constraints. 

Senior Labour MPs have argued that scrapping the cap will help economic growth in the long term by taking 350,000 children out of poverty.

But economists and opposition groups have argued the annual cost of lifting the cap could otherwise be used to fund tax cuts, stimulating growth here and now. 

Score: Negligible for growth 

Fiscal tightening

As Rachel Reeves has committed to abiding by her fiscal rule to match day-to-day spending with tax receipts in the third year of the OBR’s forecast, several economists have estimated that she will face a fiscal hole of around £30bn at the Budget. 

While last year Reeves complained about a so-called £22bn black hole and raised taxes by £40bn, fiscal policy was loosened given there was extra expenditure of some £70bn. 

This year, Reeves is constrained by her fiscal rules and the watchful eyes of the bond market.

Spending cuts could weigh down on growth, with recent figures showing government policies had pushed up on national expenditure in the UK. They are also likely to be less politically palatable after welfare savings triggered a sizable rebellion among the Labour backbenches. 

But tax hikes are set to be more damaging for businesses and households across the UK, with more leading surveys showing a higher tax burden would drastically lower spending levels across the UK economy and slow down hiring. 

Leading economists have called on Reeves to look at raising income taxes in order to mitigate the damage on growth and be able raise enough revenue to fill a fiscal hole, but that would represent a controversial break from Labour manifesto commitments. 

Other economists have urged Reeves to take extra caution with how tax policy is designed in order to keep public finances on a stable footing and stop unforeseen consequences from taking shape. 

The Treasury will hope some of the pro-growth reforms it has introduced since March can prevent the OBR from making big downgrades to forecasts. 

But fiddling with regulation and striking sector-specific trade deals will not offset the larger repercussions fiscal policy has on public finances and the future of UK growth. 

Score: Very bad for growth