Chancellor Rachel Reeves has blamed a heavier than anticipated blow from Brexit and austerity for forcing her to take action to balance the books at next month’s budget. In her clearest attempt to draw Brexit into the framing of her imminent tax and spending decisions, Reeves said leaving the EU was turning out to have caused more damage than official forecasters had previously outlined.
Speaking at an investment event in Birmingham, Reeves hinted she was braced for a sharp downgrade in growth forecasts from the Treasury’s independent watchdog, the Office for Budget Responsibility (OBR). “The OBR, I think, are going to be pretty frank about this – that things like austerity, the cuts to capital spending and Brexit have had a bigger impact on our economy than was even projected back then,” she said.
Reeves is widely expected to announce a package of tax increases and cuts to spending at the budget on 26 November in response to a shortfall in government finances that could reach up to £40bn. The OBR is understood to have handed sharply downgraded forecasts to the chancellor, fuelled by a stark reassessment of Britain’s productivity growth, soaring borrowing costs and the financial hit from the government’s high-stakes welfare U-turns.
At the heart of the OBR’s downgraded forecasts is expected to be a sharp cut in its assessment of Britain’s productivity performance, based on flatlining progress in the past decade since Brexit. A downgrade in productivity forecasts of just 0.2 percentage points would be enough to leave a £14bn hole in the government finances by the end of the decade.
Reeves said Labour could “defy the past and do better” by rebuilding relations with Brussels, slashing planning regulation and investing in infrastructure. “It is why I am putting so much emphasis on growth and productivity, because the numbers have been really bad in the last decade-and-a-half, and I am determined to turn that around,” she added.
