Brexit has made UK economy and productivity ‘weaker’ than thought, says Reeves

Rachel Reeves has said Brexit made the UK’s economy and productivity “weaker” than initially forecast when the UK voted to leave the European Union.

But the Chancellor expressed determination that “the past doesn’t define our future” as she set out plans to scrap paperwork and red tape for thousands of UK businesses in a bid to boost lacklustre economic growth at the Regional Investment Summit in Birmingham on Tuesday.

The gathering of business leaders and investors came after more gloomy news for the Chancellor as Government borrowing in September hit the highest level for the month in five years.

The data from the Office for National Statistics piles more pressure on Ms Reeves ahead of the November 26 Budget, in which she will have to fill a black hole estimated at around £50 billion by some economists.

Global volatility

Ms Reeves said the autumn statement will detail her “plans based on the world as it is, not necessarily the world as I might like it to be” as global volatility and a hike in defence spending “puts pressure on our economy”.

She said exiting the EU had caused more damage than forecasters had expected at the time, with the expected downgrade of the budget watchdog’s previous assumptions likely to make her task of balancing the books even harder.

The Chancellor told reporters: “The Office for Budget Responsibility do the forecasts for the economy. When we left the European Union, or when we voted to leave, they made an estimate about the impact that would have.

“What they’ve done this summer is go back to all of their forecasts and look at what actually happened compared to what they forecast.

“What that shows – and what they will set out – is that the economy has been weaker and productivity has been weaker than they forecast, despite the fact that they forecast that the economy would be weaker because of leaving the EU…

“I am determined that the past doesn’t define our future and that we do achieve that economic growth and productivity with good jobs in all parts of the country.”

Investment commitments

Ms Reeves highlighted more than £10 billion in investment commitments secured at the summit, as well as deregulation and reform to planning and capital markets.

The OBR’s assessment will be published in detail alongside the Budget, in which the Chancellor has already acknowledged she is looking at potential tax rises and spending cuts.

The National Institute of Economic and Social Research has suggested Ms Reeves will need to find around £50 billion a year by 2029-39 to meet her goal of balancing day-to-day spending with tax revenues while maintaining “headroom” of around £10 billion against that target.

Asked about her promise not to deliver another tax-raising statement, Ms Reeves said: “This year has been particularly volatile in terms of world events, from Ukraine to the Middle East, to the higher trade tariffs that countries around the world including the UK face. We’re not immune to that, despite the fact that we’re doing trade deals with the EU, India and with the US.

“Of course, that puts pressure on our economy, as does the increased defence spending to keep us safe in an uncertain world.

“I’ll set out all my plans based on the world as it is, not necessarily the world as I might like it to be, in the Budget on November 26.”

Company mergers

Addressing business leaders at Edgbaston Stadium earlier, the Chancellor detailed measures to reform the company merger process, regulations for drones and reforms for artificial intelligence (AI).

She said a cross-economy AI “sandbox” would allow firms to develop new products “under supervision by regulators”.

This would speed up the approval of AI for use in areas including “legal services, planning assessments and advanced manufacturing”.

The Civil Aviation Authority will set out steps towards launching commercial drone operations which could allow unmanned aerial vehicles to be widely used for tasks from “surveying sites for development to delivering blood supplies for the NHS”.

Panels reviewing company mergers will be reformed to “provide greater certainty on whether transactions will be subject to merger control”.

She also confirmed plans to create simpler corporate reporting rules for more than 100,000 businesses, including removing the need for small business owners to submit lengthy director reports to Companies House.