Chancellor Rachel Reeves has been privately warned by the UK fiscal watchdog that its estimates for productivity are likely to be downgraded ahead of the Budget, making big tax rises more likely.

Officials told the Financial Times that Reeves will blame the previous Conservative government for the expected downgrade, arguing that the Office for Budget Responsibility is giving a "historical" verdict on Tory rule from 2010 to 2024.

"We don't know precisely what they are going to say on productivity, but we have been given indications there will be a downgrade," said one official. They warned that the total fiscal hole could run to "tens of billions" of pounds, with the OBR downgrade making up a large portion of the gap.

Analysts have predicted the OBR could weaken public finances by at least £9bn by downgrading its productivity estimates, which are seen as currently too optimistic.

Although the Treasury insists Reeves will stick to her manifesto commitment not to increase income tax, value added tax or national insurance, the OBR downgrade could provide political cover for her to change her mind.

The official said: "The untold story of this Budget is the historical legacy of the Conservatives that nobody knew about. The OBR productivity downgrade could amount to half or three-quarters of the fiscal hole."

They added: "This doesn't reflect on what's happened since the election, but we are the ones picking up the bill."

The chancellor promised after her first Budget in October 2024 that she would not come back with more tax increases or extra borrowing.

The OBR declined to comment. The Treasury did not immediately comment.

The OBR currently assumes trend productivity growth will average 1.1 per cent over the medium term. Shaving 0.1 or 0.2 percentage points from that forecast would lead to a deterioration in the fiscal position of between £9bn and £18bn, according to Allan Monks, UK economist at JPMorgan.

The government already faced a £6bn shortfall after it retreated on cuts to welfare and winter fuel payments. If UK borrowing costs jump back to the highs reached early this month, it could knock several billion pounds more off Reeves' fiscal room for manoeuvre.

In March Reeves left herself £9.9bn of headroom against her key fiscal rule, which requires her to fund day-to-day spending, excluding investment, entirely through tax revenues by 2029-30.

UK fiscal watchdog to downgrade productivity forecast, worsening fiscal hole for Reeves