Unhappy situation for UK economy struggling for growth

And it was not clear, in the run-up to Wednesday’s debut from the Chancellor, that Labour would deliver such a Budget. The mood music was all about tough times, and constraints, and a black hole in the public finances.

It all sounded a bit like what we got from former Conservative prime minister David Cameron in 2010, as he got going with his utterly foolish and counter-productive austerity drive. And this all suggested it might be more of the same from Labour, with the new Government essentially just following on from where the Tories left off.

Then again, this was the first Labour Budget in 14 years.

And that 14-year period had seen some very poor policymaking from the Conservatives, so it was hardly a surprise that Labour should want to address in a big way what it portrayed as major Tory failures.

Ms Reeves, who highlighted the fact she was the UK’s first female Chancellor, set the tone early on, declaring the Budget would deliver tax rises totalling £40 billion a year.

And it was revealed in short order that £25bn of this hike in the annual tax take would be coming from a rise in employers’ national insurance contributions. Unsurprisingly, the backlash from business was swift and sharp-tongued.

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The Chancellor then set out measures to raise a further £2.5bn a year from capital gains tax, and to increase substantially the inheritance tax take. There was also the anticipated rise in the energy profits levy, probably better known as the windfall tax, which has major implications for the North Sea.

Financial markets took the huge moves in a Budget which also revealed big rises in spending and borrowing in their stride.

There was no doubting the boldness of the Budget.

The OBR’s observations on borrowing and spending, in its economic and fiscal outlook, highlight the true scale of Ms Reeves’s Budget measures.

It says: “This Budget delivers a significant and sustained loosening of fiscal policy which increases borrowing by £35 billion - 1.2% of GDP (gross domestic product) - in 2025/26 and by £30 billion - 0.9% of GDP - in 2029/30.”

It adds: “This increase in borrowing relative to our pre-measures forecast is the net result of: a £72 billion (2.1% of GDP) increase in spending in 2029/30, around two-thirds of which is current spending and one-third capital spending; and a £42 billion (1.2% of GDP) increase in taxes in 2029/30, of which over half comes from an increase in employer national insurance contributions.”

Unfortunately, however, the big Budget measures did not translate into any significant brightening of the UK’s growth outlook.

The UK growth forecast for this year has been revised up to 1.1%, from 0.8% at the time of the March Budget, by the OBR.

And the 2025 growth prediction has been edged up from 1.9% in March to 2%.

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However, growth forecasts for 2026, 2027 and 2028 are all lower than in March. Growth in 2026 is now expected to be 1.8%, down from the previous 2% projection. The OBR’s prediction for growth in 2027 has been reduced from 1.8% to 1.5%. And the projection for expansion in 2028 has been cut from 1.7% to 1.5%. The OBR’s growth forecast for 2029 is 1.6%.

The issue of UK growth was seized upon in the wake of the Budget by European Movement UK, a cross-party organisation campaigning on the benefits of close ties between the UK and European Union. This organisation was formed in 1949 by Sir Winston Churchill to prevent further conflict between European countries.

Professor Molly Scott Cato, vice-president of European Movement UK, said: "How can the UK economy compete against the low costs of China, the vast subsidies of America’s inflation reduction act and the frictionless borders of the EU? We are told that Reeves’s first Budget is ‘a Budget for growth’, but how is the Chancellor of a small market outside the main trade blocs of the world going to compete and achieve that growth?

"If we seem to be caught between a rock and a hard place, I can suggest an obvious way out: becoming again part of the single market, and not just for trading purposes.”

Labour has, of course, ruled out rejoining the EU or European single market.

In this context, it was difficult not to raise an eyebrow when Ms Reeves said of the Conservatives in her Budget speech on Wednesday: “Their Brexit deal harmed British businesses.”

My column in The Herald on Friday observed: “There is indeed a huge disconnect between Labour’s focus on growth and its stance on the European single market. This is lamentable, given how hard growth is to come by and the huge boost to economic activity that would be triggered if the UK were able to rejoin the single market.”

For its part, the OBR notes in its economic and fiscal outlook: “Weak growth in imports and exports over the medium term partly reflect the continuing impact of Brexit, which we expect to reduce the overall trade intensity of the UK economy by 15% in the long term.”

For the avoidance of doubt, that is a very big effect. And it is not a happy one for a UK economy that does not have its troubles to seek.