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, she 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. She added that the government was “unashamedly rebuilding our relations with the EU to reduce some of those costs”.
Reeves’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. It also marks an opportunity for Labour to tackle rising support for Nigel Farage, with the prime minister recently attacking the Reform leader for “walking away” from the leave vote without a plan.
In an interview with the Guardian on the sidelines of the government’s first regional investment summit at Edgbaston cricket ground, Reeves said Labour could “defy the past and do better” because the government was prepared to rebuild relations with Brussels, slash planning regulation and invest 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 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 the 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.
