Budget 2024: The Elephant in the Room is that Brexit Has Made Britain a Much Poorer Place

“Labour’s first mission in Government will be to secure the highest sustained growth in the G7… making everyone, not just a few, better off.”

So read the first of the Labour Party’s “five missions” for the country, which it set out in the run up to this year’s general election.

Yet the grim reality of Rachel Reeves’ first Budget as Chancellor is vastly different to what we were led to expect.

Far from being on course for the “highest sustained growth” of all leading economies, Reeves confirmed today that growth is set to remain at historically low levels for the foreseeable future.

According to a new forecast by the Office for Budget Responsibility, Britain is on course to complete its second full decade of low growth since 2010.

BREAKING

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And that slump is set to continue, despite Reeves’ plans to pour lots more money into day-to-day spending and investment over the coming years.

Under her plans, spending on the NHS and education will rise significantly, while cuts to infrastructure investment will also be reversed.

This increased spending will come at cost, however. Under her plans, overall taxation will rise by £40 billion to a new historic high, and borrowing is set to soar too. Increases to employers’ National Insurance are also likely to feed through to lower wages, particularly among the lower paid.

And despite all of this extra revenue, budgets in half a dozen departments, outside health and education, are actually set to be cut in real terms, with big cuts to welfare spending also coming down the track.

Long-mooted plans to scrap the two child benefit cap, which has already driven thousands of children into poverty, did not emerge today either.

The result is that for many British people, life is not likely to feel much better any time soon.

Indeed, according to the OBR, real household disposable income per person – which is the key measure of living standards – is only forecast to grow by an average of just over half a percentage point a year, over the coming years.

Coming as it does after the British people suffered the biggest fall in living standards since records began under the Conservatives, this amounts to a particularly grim outlook for the country.

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The ‘B’ Word

All of which poses the question: How did we get here?

In her statement to MPs, Reeves sought to lay the blame on the economic decisions taken by her predecessors.

In particular she pointed to the decade of cuts to investment made by successive Conservative chancellors as well as the “path of irresponsibility” taken by Liz Truss and her “mini-budget”.

And yet at no point in her statement did Reeves ever acknowledge what was arguably the single most harmful economic decision by her predecessors – the decision to leave the EU.

According to the OBR, Brexit is on course to reduce the potential size of the economy by four per cent of GDP, leaving both the UK economy and individuals permanently worse off.

That decline is due in large parts to the restrictions in trade caused by leaving the EU. According to an assessment published today by the Office for Budget Responsibility, the “continuing impact of Brexit” means that “the overall trade intensity of the UK economy [will reduce] by 15% in the long term”.

That is a big reduction in the potential economic performance of the country at a time when every penny really counts.

And yet at no point has either Reeves, or her Government, been prepared to even contemplate taking the “difficult choice” to reverse that decision, insisting instead that they plan to “make Brexit work”.

However, the truth is that without any such reversal, or any other plans to trigger the sort of growth that has escaped the UK for the past decade and a half, we can expect even worse news in the coming years.

Already announced plans to cut winter fuel payments and lift the cap on bus fares are likely to be just a small taste of what is likely to come over the coming months and years.

This isn’t to say that the Chancellor’s decisions today won’t have any positive impact. In its response to the Budget, a Conservative Party spokesperson confirmed that the party would have made significantly bigger cuts to spending and welfare than the Labour party.

The result, had Rishi Sunak won the general election, would have been an even longer and deeper cut to living standards than we are likely to experience now.

For these reasons Reeves’ budget should be broadly welcomed. The new era of austerity planned by the Conservatives has been mostly avoided in the short term, even if the longer-term outlook appears grim.

Yet until the Government starts to face up to the significant damage done by Brexit, and the incremental slump in our economic fortunes that have followed, the new era of prosperity promised by Labour is likely to elude the UK for many more years to come.