UK's Reeves faces "major fiscal issue" if she misses efficiency target, IFS says

LONDON (Reuters) -British finance minister Rachel Reeves risks "a major fiscal issue" if she misses her ambitious plans to make public services more efficient, a think tank warned on Friday, underscoring yet another challenge for Reeves ahead of her November budget.

The Institute for Fiscal Studies estimated that Reeves' spending plans implied average productivity growth in the public sector of 1.0% a year between now and the 2028/29 tax year.

That compares with historical averages of 0.7% per year between 2009 and 2019 and just 0.2% per year between 1997 and 2019, the non-partisan IFS said.

The economy's recovery from the coronavirus pandemic and possible efficiency gains from artificial intelligence offered some grounds for optimism, it said.

"But it is very possible that productivity targets will be missed," the IFS said in a report published on Friday. "This would be a major fiscal issue since these plans underpin the departmental budgets set out at the June Spending Review."

Failure to meet the efficiency targets would add to demands on public spending at a time when Reeves is struggling to meet her targets for improving the public finances.

She is widely expected to increase taxes for the second time in just over a year when she announces her annual budget on November 26.

(Writing by William Schomberg; editing by Suban Abdulla)