LABOUR must face up to the fact that a “possible £30 billion shortfall” in the Autumn Budget is directly linked to the £30bn per year lost to Brexit, Scotland’s Finance Secretary has said.
Responding to Chancellor Rachel Reeves’s speech on Tuesday morning, Shona Robison said that the UK Government should follow her recognition of the harms of leaving the EU to its “logical conclusion” and back rejoining the bloc.
Reeves took the unusual step of pre-empting her November 26 Budget with a speech which was widely read as a bid to prepare markets and voters for tax rises. She did decline to recommit to Labour’s manifesto commitments not to raise income tax, national insurance, or VAT.
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Instead, she blamed global problems including US president Donald Trump’s tariffs and domestic issues – such as the budget watchdog’s expected downgrade of economic productivity – for “hard choices”.
Reeves said: “As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity and to ensure that the economy that we hand down to future generations is secure with debt under control.”
Late last month, Reeves used a speech at the Future Investment Initiative summit in Saudi Arabia to point to Brexit as the reason for “too much cost” and “increasing red tape” in trading with European partners.
Responding to Reeves, Finance Secretary Robison said: “Recently the Chancellor admitted that Brexit has damaged the economy. Brexit has had a hugely negative impact on public spending, reducing the available investment for public services by around £30bn a year.
“It is hardly a coincidence that it is suggested that the Chancellor is looking to address a possible £30bn shortfall in her Autumn Statement.
“The UK Government needs to follow their recognition of the harm of Brexit to its logical conclusion and recognise that it is only by rejoining the EU and the European single market that they can halt pain being inflicted on the economy and public services.”
Robison went on: “We are calling on the UK Government’s Autumn Budget to deliver more funding for those public services, infrastructure, and cost of living support – including by abolishing the two-child limit in Universal Credit.
“Scotland has been short-changed in the past, and we must not be left as an afterthought in the UK Government’s Budget.
“Under the current arrangements Scotland has to wait and see what impact the Chancellor’s decisions will have for us. Fundamentally, it’s only with the powers of independence that we can fully support our public services and deliver a stronger economy that works for everyone.”
Elsewhere, the UK Government’s long-term borrowing costs edged lower after Reeves reiterated an “ironclad” commitment to her fiscal rules, but the pound came under further pressure as she set the stage for an income tax hike.
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Yields on UK government bonds, also known as gilts, fell as much as six basis points to 4.38%, while the 30-year yield dropped to its lowest level since April at 5.15% at one stage.
Gilt yields move counter to the value of the bonds, meaning their prices fall when yields rise.
The pound, which was already lower ahead of the speech, fell further after the comments to stand 0.3% lower at 1.31 US dollars and 0.3% weaker at 1.14 euros, not far off last week’s over two-year low against the single currency.
Sterling has been under pressure in recent days amid worries over the UK economy and ahead of the Bank of England’s interest rate decision on Thursday, with another cut seen as being increasingly likely.
Experts appear split on whether that cut will come in November or December, but the chances of a further reduction from 4% currently have increased as inflation is thought to have peaked now at 3.8% while the jobs market outlook looks more shaky.
The FTSE 100 Index meanwhile fell deeper into the red after the speech, down 1% or 92.5 points lower at 9608.9.
Rachel Winter, a partner at Killik & Co, said: “UK equities are in negative territory following the Chancellor’s speech, suggesting a lack of confidence in the prospects of the UK economy.
“A higher tax burden will mean less discretionary spending and therefore less growth.”
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