Rachel Reeves’s decision to blame Brexit and its architect Nigel Farage for the scale of the black hole in next month’s Budget is a significant political gamble.
The Chancellor risks a confrontation with her party’s supporters. One in five Leave voters backed Labour at the last election, with many now tempted by Reform UK.
“Austerity, Brexit, and the ongoing impact of Liz Truss’s mini-Budget; all of those things have weighed heavily on the UK economy,” the Chancellor told Sky News on Wednesday, as she laid the groundwork for tax rises in November.
With welfare and winter fuel policy reversals, the signs for this Budget are only pointing one way: to tax increases and spending cuts. But Reeves also has another problem. On 26 November, just as she dusts off her red box, the Office for Budget Responsibility (OBR) will announce a reduced productivity prediction.
The fiscal watchdog is likely to argue that Brexit was a major cause of the downgrade to productivity, with sources indicating the economy would have been £120bn bigger by 2035 had the UK not left the European Union.
With the OBR recalibrating its entire way of assessing its forecasts on Reeves’s watch, Labour is questioning why the watchdog did not get its abacus in order before the election. “Why didn’t they make the Tories own it?” one minister lamented.
The consultancy Oxford Economics estimates that moving the OBR’s productivity forecast back in line with a less optimistic projection would knock 1.4 per cent off GDP over its five-year prediction cycle. That, they argue, would force Reeves to increase taxes or cut spending by an eye-watering £20bn to meet her fiscal rules and maintain her slim £10bn of headroom before any other choices.
But after the backlash to tax rises in last year’s Budget, how does the Chancellor come back for more? And more politically important for Labour, who will take the blame?
Like the Lord High Executioner in The Mikado, Reeves has a little list of people to fault. Austerity, the pandemic, Ukraine, Liz Truss and global market conditions will all be noted, according to Treasury sources. But Labour’s key electoral threat will be afforded the lion’s share: the architect of Brexit, Nigel Farage.
But there are dangers to a political strategy that risks treating voters like nursery schoolchildren by telling them they made bad choices. One Labour MP in a “Red Wall” seat is not impressed.
“It’s insane. The only thing I can think of that they’re going for here is to shore up the progressive base, throwing a bit of red meat to people who think that Labour should be trying to rejoin the EU. I just cannot believe that this has actually been put to focus groups, and they think this is going to play well with the kind of people that we need to win back,” the MP said.
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It is not a universal view. Jonathan Brash, Labour MP for Hartlepool where 70 per cent voted Leave in 2016, says voters are owed a grown-up conversation about the effects of Brexit.
“The people I represent are straight-talking and honest. And I think today we would look at the facts and look at the settled opinion that overall, economically, Brexit has not been good for us. Now, does that mean it will be good for us? Who knows? That’s the future.
“[Farage] is one of the biggest advocates of Brexit. He should be out saying exactly why it’s actually not been economic damaging to the country at all,” Brash added.
But ahead of local elections in May, the Government’s attempt to blame Farage also risks re-energising the two-fingers to Westminster attitude that swung the Leave vote in 2016. Reform will be keen to point out that Farage may have campaigned for Brexit, but it was the Tories who implemented it and Labour which is now seeking closer ties to the bloc.
“I don’t think voters in places like mine see Brexit as a mistake at all. They see it as unfinished business,” Reform’s Deputy Leader of Durham County Council Darren Grimes told The i Paper.
“If Labour now wants to pin their tax rises and spending failures on Brexit, they’ll find that doesn’t wash here,” Grimes added.
The Government is aware of the public anger over the rising number of small boats and how Farage is exploiting the issue. Treasury sources suggested the Budget could also contain measures to slash waste in the asylum budget.
Back in Westminster the OBR has been urged “to score” more Government projects. That means demonstrating how policy decisions add to national growth figures and give Reeves more wriggle room for spending. With the decision on which programmes to pick down to the independent watchdog, Treasury insiders grumble that major decisions are sometimes left off its reckonings to the detriment of growth figures. One example is that by Reeves’s fiscal update in March the OBR had still not scored the benefits of the UK joining the CPTPP trans-Pacific trade bloc in late 2024.
On Tuesday Reeves told Cabinet colleagues planning liberalisation is one measure “to take the shackles off the economy”. It’s also something she hopes the OBR will score more favourably. Likewise, the Chancellor is seeking a positive score for the EU reset deal and youth mobility programme.
Perhaps ironically for someone seeking to blame Brexit, she would also like the OBR to score the benefits from the India free trade deal, only made possible by Britain’s withdrawal from the European Union.
The challenge presented by Reform is the key trial for the incumbent Labour administration. Outreach to Reform-inclined voters is a core element of No 10 strategist Morgan McSweeney’s plan. Last Christmas Keir Starmer announced five missions for his government – stopping Farage is Labour’s unwritten sixth mission. That’s why Reeves’s decision to blame Brexit seems jarring, however technically correct she may be.
She may find a sympathetic audience: just three in ten Britons now say that it was right for the UK to vote to leave the EU, compared to 55 per cent who say it was the wrong decision.
But Farage’s current popularity also stems from rebellion, identity, and complaint. These are areas where Labour seems less confident, particularly when they’re trying to get across a technocratic message linked to the OBR. Simply put, voters dislike higher taxes about as much as being told they were wrong.
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