Esmond Birnie: ​It is wrong of the chancellor Rachel Reeves to blame Brexit for our current economic woes in the UK

Esmond Birnie argues Chancellor Rachel Reeves is wrong to pin the UK’s economic problems on Brexit, saying pre-budget leaks and policy U‑turns have already damaged economic certainty; Reeves is likely to justify breaking the no-tax-rise pledge by citing legacy fiscal damage and alleged Brexit-driven weaker growth. Birnie contends that post‑2024 government choices—higher public spending, the Employment Rights Bill and a big rise in employer National Insurance—have also suppressed growth, and he questions the OBR’s oft‑cited 4% Brexit penalty as an average of disparate studies rather than a robust estimate, noting UK growth 2016–25 outperformed major EU peers. The piece implies the budget narrative risks overstating Brexit’s role, which has consequences for fiscal credibility and investor confidence ahead of budget implementation.

Analysis

Esmond Birnie disputes Chancellor Rachel Reeves' tendency to attribute the UK's current economic malaise to Brexit, noting pre‑budget leaks and a reported u‑turn on a proposed two‑pence income‑tax rise have already sapped policy certainty. He argues the budget narrative that Brexit forced the government to break its "no tax increases on working people" pledge rests on a selective reading of fiscal causation and that kite‑flying has damaged economic confidence ahead of formal measures.

Birnie highlights that the UK entered Labour's 2024 government with a large budget deficit and elevated public debt and that the economy endured two major shocks — the 2007–08 banking crisis and the 2020–21 COVID shock — which complicate attribution. He contends government choices since 2024, including higher public spending (notably public‑sector pay), the Employment Rights Bill and a substantial employer National Insurance increase, have been inconsistent with the stated "growth mission" and likely contributed to continued low growth, implying fiscal repair will require trade‑offs that affect business costs and demand.

He challenges the commonly cited OBR long‑run estimate that Brexit reduced GDP by 4%, noting it is an average of 13 heterogeneous studies rather than an independent OBR modelling outcome, and points out that mid‑2016 to mid‑2025 UK growth outpaced France, Germany and Italy. That empirical context suggests the Chancellor's Brexit framing may overstate structural damage, which matters for fiscal credibility and market expectations; sentiment from the piece is moderately negative and the market‑impact score of 0.35 implies only modest near‑term market sensitivity to budget messaging.

Key Decisions for Investors

• Await full budget details and OBR commentary before making material changes to UK equity allocations given pre‑budget leaks, policy U‑turns and uncertainty over tax measures
• Consider reducing or hedging exposure to domestically focused, payroll‑intensive sectors that would be most affected by higher employer National Insurance and the Employment Rights Bill
• Review sovereign and gilt duration positions and monitor deficit and debt updates closely, as fiscal repair claims and higher spending could increase issuance or risk premia
• Track OBR revisions and cross‑country growth data; if Brexit's estimated hit is revised down and UK growth appears relatively stronger, be prepared to reallocate from continental peers into UK assets