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. “That is why we are unashamedly rebuilding our relations with the EU to reduce some of those costs, that in my view were needlessly added to businesses since 2016 and since we formally left a few years ago.”
The chancellor’s intervention comes amid growing confidence within Sir Keir Starmer’s government to speak out about the damage of Brexit, as the decision to leave the EU almost a decade ago continues to weigh heavily on Britain’s economic performance. 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.
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. The forecaster has previously admitted it has been too optimistic about the British economy’s prospects for growth. 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 is also keen to announce measures at the budget to bear down on prices, where these can be influenced by policy. She is expected to chair a meeting of cabinet colleagues on Thursday to ask what each department can do to tame inflation. A Treasury source said: “The chancellor’s view is that tackling the cost of living is urgent, and everything is on the table – including measures to bring down energy bills. She’s getting the whole of government to play its part, it’s her No 1 focus.”
