Brexit Blame Game Looms Over UK Productivity And Budget

Rachel Reeves’ recent address at the IMF in Washington signalled a notable shift in the Government’s narrative about Britain’s economic woes. Instead of continuing to lay responsibility at the feet of previous Conservative administrations, the Chancellor has turned her sights on Brexit, declaring that the UK’s departure from the European Union has compounded the nation’s productivity problem.

This adjustment in rhetoric comes as the Government prepares for the upcoming Budget, where Reeves is expected to cite upward pressure on taxes due to the latest Office for Budget Responsibility (OBR) forecasts of lacklustre productivity growth. Brexit, she suggests, bears much of that blame. Highlighting Brexit in this manner is not only politically hazardous—implying that millions of Leave voters are to blame for tax rises—but also risks oversimplifying a complex economic picture.

The reality is that the OBR has incorporated an anticipated Brexit-related productivity hit into its forecasts for years. Since 2016, the OBR has flagged that Brexit would dampen productivity by around four per cent and reduce trade intensity by fifteen per cent versus remaining in the EU. Most economists agree that the bulk of this impact has already occurred, and recent reviews in 2023 and 2024 left these estimates unchanged. Business investment figures, a crucial barometer of productivity, strengthened throughout 2023 and early 2024 before softening again. The OBR already accounts for this weakness in its models, so any further downgrades would be difficult to attribute solely to Brexit.

Britain’s productivity puzzle stretches back to long before the 2016 referendum. Productivity growth effectively stalled after the 2008 financial crisis and has failed to recover, with no discernible post-referendum collapse. Structural factors, most notably persistently high immigration, have played a major role. Easy access to overseas labour has diminished the incentive for businesses to invest in staff training or productivity-enhancing technology, leaving gains per worker flat. This decline in workplace training investment pre-dates Brexit and has continued across successive governments.

When the OBR releases its next report, wider global forces such as rising tariffs and international economic uncertainty are just as likely to be cited for any downgrade. Domestically, business taxes and looming employment regulations—such as Labour’s proposed Employment Rights Bill—could also exert downward pressure on productivity growth, with Treasury officials expected to scrutinise these details closely.

Should the Government continue to place Brexit in the frame for today’s economic challenges, it risks scrutiny of its own recent decisions, including tax rises and regulatory changes. Any attempt to pin fiscal pain on the aftermath of Brexit will be viewed as a distraction from the policy choices being made now. If the Chancellor presses the Brexit blame narrative, voters may see it as an evasion of responsibility for the country’s present economic state.