The most positive outcome that Rachel Reeves, the UK chancellor of the exchequer, can hope for in her 2026 Budget is that it will substantially plug the country’s £30 billion fiscal deficit. But there are doubts that the measures unveiled yesterday, which amounted to £26 billion in tax increases offsetting a £11.3 billion rise in spending, will achieve the bare minimum needed to achieve this and to shore up the premiership of Keir Starmer.
The budget included a wide array of mostly incremental tax increases. There was a freeze to income tax thresholds – a stealth tax hike which will disproportionately hit lower and middle income workers. There were targeted measures on savings and pensions, charges on electric cars, and a mansion tax. In an effort to appease Labour backbenchers, the two child limit on child benefits was removed and the minimum wage increased.
The government is also pledging to invest in infrastructure to boost productivity. But what was absent were any indications of how Labour will address the deep-rooted problems affecting the economy and reduce the £2.6 trillion debt pile. And as long as the UK economy stays stuck in a low growth cycle, its political landscape will remain unstable.
There is one clear reason for the poor performance of the economy. Recently released research by the US National Bureau of Economic Research on the impact of Brexit shows that the outcome has been far worse than even the gloomiest forecasts at the time of the 2016 referendum. There has been a massive hit to UK investment, productivity and GDP growth.
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Closer ties with the EU would help the outlook, but promising to align with Europe’s rules to achieve this will prove politically difficult. And the divisive immigration debate continues to play into the hands of Nigel Farage’s Reform party. Nearly a decade after the referendum and five years after the UK’s exit from the EU, the economic and political price of Brexit is all too clear. However , its chief proponents do not seem to be paying the political price.
