Britain needs to sign an “ambitious” migration deal with the EU that allows young Europeans to live and work in Britain, bolstering economic growth and reducing the need for tax rises in the budget, Rachel Reeves has said.
In an interview with The Times before Labour’s conference this weekend, the chancellor said that the Office for Budget Responsibility (OBR), the official forecaster, should include the benefits of the government’s post-Brexit “reset” with the EU.
She said that a youth mobility scheme, which would allow young people from the EU to work in the UK and vice versa, would be “good for the economy, good for growth and good for business”.
“We want the OBR to score it,” she said. “They scored it when we left the European Union. They should score both the improved trade relationships that we’ve negotiated and this youth experience scheme.”
She made the comments as Labour seeks to strike clear dividing lines with Reform UK. Nigel Farage, the Reform leader, has warned that plans for a youth mobility scheme would “effectively be a back door to free movement”.
A recent poll suggests that Reform is close to having enough support to form a majority government if an election were held today. The YouGov poll showed that Labour would be left with just 144 MPs, down from the 411 seats that Sir Keir Starmer won at the general election.
Reeves is facing a hole of as much as £30 billion in the public finances, which she will have to fill with tax rises in her budget on November 26.
She is attempting to reduce the scale of the tax rises needed by convincing the official forecaster to take into account the economic benefits of government policies, including the EU reset, trade deals and planning reforms.
The OBR has previously suggested that GDP is as much as 4 per cent lower than it would have been if the UK had remained in the EU.
Research carried out last year found that if net migration increased by 31,000 a year as a result of a youth mobility scheme, it could increase GDP by 0.45 per cent in ten years.
The House of Commons library has suggested it could be worth as much as £5 billion a year, money that Reeves might otherwise have to find in tax rises.
Reeves said a youth mobility scheme would be “good for the economy, good for growth and good for business”
JASON ALDEN/BLOOMBERG/GETTY IMAGES
Reeves said: “We have agreed as a government that we want to have an ambitious youth experience scheme to allow young people in Britain to be able to go and work, to travel, to volunteer, to gain experience, to learn languages in European countries.
“And we want young people from those European countries to also be able to come to the UK and have the same opportunities that my generation had to travel and work and study in Europe.
“We also want the OBR to score that because when we left the European Union, the OBR said that our economy would be 4 per cent smaller as a result. As a result of that reset in May, we think the economy will be stronger.”
Reeves believes that controlled migration is good for the economy and Britain. The youth mobility scheme will be time-limited, with those aged 18 to 30 allowed to stay for two years and given no right to remain.
She refused to put a figure on how many young Europeans would be eligible to come and live and work in Britain under the scheme, but The Times has been told it could be as high as 50,000 a year.
That would eclipse the UK’s existing youth mobility schemes with about a dozen other countries. In 2024, the UK granted just over 24,000 youth mobility visas to other nations.
Reeves said: “I think there’s three things in terms of the ambition. It’s around the ages of the young people. It’s around how long they can stay for. And it’s about the number. And all of those things matter for young people and indeed for businesses.”
The chancellor acknowledged that the budget would be “challenging” because the OBR has downgraded forecasts for the productivity of the economy, increasing the gap in the public finances.
“They are choosing this moment to make those revisions. That’s a challenge for me,” she said. “But I’m not going to duck that challenge. I will respond to it because it is important that I can give that confidence that we’ll continue to provide economic stability.”
She sought to blame the Tories for the downgrade in the forecasts. “It’s well known that they’re doing what’s called a supply-side review [the productivity review],” Reeves said.
“Unfortunately, the last few years of productivity have been pretty dismal, because the Conservatives — through both austerity, Brexit without a plan and then Liz Truss’s mini-budget — they whacked business investment, and our productivity has been weak, both compared to the past, under the previous Labour government, and compared to other countries around the world.”
When asked whether she would level with people that this will be a “tough” budget, she said: “No one’s saying anything else. I think anyone who opens a newspaper, watches the telly in the evening, goes on social media, can see that the world is a very uncertain place and that the world has changed in the last 12 months.”
She said that she stands by her manifesto pledge not to increase income tax, VAT or national insurance, despite warnings from economists that she will have no choice. She also insisted she would not move on her fiscal rules. “Not because I’m obstinate, because they are what provide stability. They are not in conflict with my ambition to make working people better off. They are absolutely essential to making working people better off.”
Reeves also launched a stinging attack on Andy Burnham’s warning that the government must “get beyond being in hock to the bond markets”, saying that if the UK lost the confidence of investors, it would risk a repeat of Liz Truss’s mini-budget.
“Would I like to be less in hock to bond markets? Of course I would. But it is the reality that we rely on those bond markets and those people participating in them to buy our debt,” she said.
“When you are issuing still tens of billions a year, you need to maintain that confidence. That’s my job as chancellor, and I take that job very seriously.”