Rachel Reeves cannot start to blame Brexit now for her economic fix

Brexit is no longer a banned word. Rachel Reeves used her attendance at the IMF annual meeting to talk about the impact of the UK’s exit from the EU on growth. Now the chancellor has blamed Brexit for the UK’s persistently worse performance on inflation than other major economies. 

Reeves is of course right. The widespread economic consensus from before the referendum was that Brexit would hit the UK’s growth performance – through reducing trade openness by putting up barriers to trading with the UK’s predominant export market and thus also reducing internal competitive pressures. Businesses would try to pass on the costs of doing business with the UK – or shun the market entirely. The UK would become a less attractive destination for investment – no longer an essential link in pan-European supply chains. All this has been known for a long time, and has featured in repeated economic and fiscal outlooks since Boris Johnson agreed a hard Brexit to maximise Great Britain’s regulatory freedoms, leaving it outside both the customs union and the single market and thus facing a welter of new non-tariff barriers. 

But while Reeves is right, blaming Brexit for damaging the UK economy is an argument she could have made at the election or in her first budget.  

It is still not clear that the OBR has changed its Brexit assessment 

As the budget build-up intensifies, there is widespread speculation that the OBR will downgrade its assessment of UK productivity. What is not clear is whether the OBR is going to revise its longstanding assessment that Brexit would reduce the UK economy by 4% over the long run, although officials have suggested they might. ⁷ https://www.ft.com/content/3806bd37-c310-4414-80e8-c35352424b83  

If the OBR revised its assessment to show a much bigger impact, Reeves might have a case to claim that “Brexit was even worse than we first thought” (and there was always quite a big range of estimates). However, at the IMF she stuck to the 4% figure already embedded in all the forecasts.  

The politics around Brexit have changed

Reeves’s new outspokenness seems more down to the shift in public opinion on Brexit and the perceived political need to confront the surge in support for Reform. The public has become increasingly sceptical of Brexit and prepared to blame it for damaging the economy. Recent polling by YouGov for Best for Britain ⁸ https://assets.nationbuilder.com/b4b/pages/14454/attachments/original/1760695169/The_Brexit_Report_-_Public_attitudes_towards_Brexit_ahead_of_the_202…  (which campaigns for closer ties to the EU) showed that more than six out of 10 voters thought Brexit was more of a failure than a success and over half of those say that they think it’s a failure because of the damage to the economy. Possibly even more relevantly to the government’s new-found willingness to talk about Brexit is that seven out of 10 of those who think Brexit isn’t working blame Nigel Farage (only marginally topped by the eight out of 10 who also blame Boris Johnson). At the Labour Party Conference Keir Starmer attacked “snake oil salesmen” – now the government is going one step further in its attacks on Reform by being prepared to call out Brexit as one of the brands of snake oil on offer. 

The problem for the government is that, having identified the problem, it does not have proposals to make a significant change to the UK’s economic relationship with the EU.  The much vaunted reset has yet to bear any concrete fruit for anyone except EU fishermen and even if the UK does land its deals – to make agriculture and food exports easier, to participate in the EU energy market, to link emissions trading schemes and so avoid the EU’s Carbon Border Adjustment mechanism, to get access to EU defence contracts, and to allow more EU under-30s to work and study in the UK – it will barely make a dent in the estimates of the economic costs from Brexit. That would require much bolder (and politically much riskier) steps than the government is prepared to take. 

Having a government prepared to talk about the economic impact of Brexit may be good for the quality of public debate. It may also lead to a better long-term discussion of the genuine trade-offs that previous governments denied existed. For now, however, Rachel Reeves’s argument is purely political. What it does not do is make any material difference to the performance of the economy.