Chancellor Rachel Reeves has said the UK’s economic struggles from Brexit and austerity are forcing her to take action in next month’s budget. She signaled that tax increases and spending cuts will be needed to balance public finances.
Speaking at an investment event in Birmingham, Reeves said the economic impact of leaving the EU has been heavier than predicted by official forecasters. “Austerity, cuts to capital spending, and Brexit have had a bigger effect on our economy than projected,” she said.
Reeves said she is working to rebuild relations with the EU to reduce costs added to businesses since 2016. Her comments mark a strong attempt by Labour to frame Brexit as a continuing drag on the UK economy.
The chancellor’s statements come as official figures are expected to show a rise in UK inflation. Economists forecast annual inflation at 4% in September, up from 3.8% in August, double the government’s 2% target. Reeves said tackling the cost of living is urgent and that departments are being asked to find solutions, including measures to reduce energy bills.
Reeves is expected to announce a budget package on 26 November that will include tax rises and spending cuts. The measures respond to a potential government shortfall of up to £40bn.
The Office for Budget Responsibility (OBR) has handed Reeves downgraded forecasts, highlighting weak productivity growth, rising borrowing costs, and financial pressures from recent welfare changes. Government borrowing in the first six months of this financial year reached £99.8bn, £7.2bn above earlier estimates.
A key issue is Britain’s flatlining productivity since Brexit. Even a small downgrade in growth forecasts could leave a multi-billion-pound hole in public finances. The OBR and Bank of England have warned that Brexit’s impact on productivity will be felt for years.
Reeves emphasized the importance of investment to spur growth. She ruled out cuts to long-term infrastructure spending on transport, energy, and other productivity-enhancing projects. The chancellor said these protections were possible due to changes she made last autumn to fiscal rules, allowing borrowing for investment separate from day-to-day spending.
“If we came out of the budget with plans that investors saw as flawed, we could see borrowing costs rise for consumers and businesses,” Reeves said, referencing the 2022 mini-budget crisis under Liz Truss.
Reeves also outlined plans to raise taxes on wealthier workers through a £2bn levy on lawyers, doctors, and accountants. This will target individuals employed through limited liability partnerships (LLPs), who currently pay lower national insurance rates. The new rate is expected to be just below the standard employer national insurance rate of 15%.
The chancellor said Labour is prioritizing growth and productivity while closing the budget gap. Cutting business regulations, reforming planning rules, and investing in infrastructure will form the backbone of the government’s strategy to boost the economy after years of underperformance.
Reeves concluded that her budget will protect capital investment while ensuring public finances remain under control, signaling a mix of fiscal discipline and long-term economic planning.
