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 autumn budget.
Speaking to business leaders in Birmingham for the government’s first regional investment summit, the chancellor said leaving the EU had caused more damage than official forecasters had expected.
Hinting that she was braced for sharply downgraded growth forecasts from the Treasury’s independent watchdog, the Office for Budget Responsibility (OBS), Reeves said action was needed.
“We know the OBR – I think are going to be pretty frank about this – [will say] 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.
“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.”
Reeves is widely expected to announce a package of tax increases and cuts to spending at the budget on 26 November. She is facing a shortfall against her self-imposed fiscal rules that require day-to-day spending to be balanced by revenues within five-year’s time.
The Treasury watchdog is believed to be preparing to sharply downgrade its forecasts for the productivity growth of the British economy, alongside taking into account rising borrowing costs and the financial cost of Labour’s high-stakes welfare U-turns.
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In comments to 350 business leaders, regional mayors and investors gathered at Edgbaston cricket ground on Tuesday, the chancellor acknowledged she was facing a “tricky” budget and would need to take steps to balance the books.
