Rachel Reeves ramped up her attack on Brexit today as she braced Brits for a fresh wave of taxes in the Budget.

The Chancellor admitted the economy is ‘not working as it should’ and she does not ‘like’ the situation as government borrowing hit a new post-Covid high.

At an investment summit in Birmingham, she tried to blame the UK’s vote to leave the European Union in 2016 – as well as austerity and cuts.

However, Tories accused Ms Reeves of letting spending ‘spiral out of control’, with figures showing a continuing splurge on public services outweighing surging tax revenues.

Asked about her Budget on November 26 she said: ‘The OBR is going to be pretty frank about this, that things like austerity, the cuts to capital spending and Brexit, have had a bigger impact on our economy than even was projected back then.

‘That’s why we are unashamedly rebuilding our relations with the European Union to reduce some of those costs that were, in my view, needlessly added to businesses since 2016 and since we formally left a few years ago.’

The intervention came as official figures showed public sector borrowing was nearly £100 billion between March and September, the second-highest amount since monthly records began in 1993.

Last month alone the government was £20.2billion in the red, £1.6billion higher than the same period a year earlier. 

It has only been worse in September in 2020 when the country was burning through money to deal with the pandemic. 

The shortfall was despite central government tax receipts increasing by £21.2billion to £391billion. National insurance revenues surged after Ms Reeves’ attack on employer contributions took effect in April.

But that rise was outweighed by a £47.3billion spike in government expenditure in the first six months of the financial year, to £557.2billion. Public services spending and costs of servicing debt were higher.  

At the conference in Birmingham, the Chancellor acknowledged that ordinary Brits and businesses were suffering – but denied the economy is ‘broken’. 

Despite saying people felt they were ‘putting more in’ and getting ‘less out’ of the state, she stoked fears she will raid the ‘rich’ and pensioners.

‘At the Budget last year we fixed the foundations of our economy, returned stability to our economy,’ she said.

‘And at the Budget next month we will take the necessary steps to secure those foundations and that stability for the future.’

Labour MPs have been clamouring for ‘wealth taxes’ to fill the gap in the finances and fund more spending. 

Analysts had pencilled in £20.8billion of borrowing in September, but the Treasury’s OBR watchdog predicted a lower level of £20.1billion.

Worryingly for Ms Reeves the figure is already £7.2billion higher than the OBR anticipated for this point in the year. Experts believe it could end up about £10billion more in 2025-26 than was expected in March.

ONS chief economist Grant Fitzner said: ‘Last month saw the highest September borrowing for five years. Debt interest, the cost of providing public services and benefits all increased compared with last year, more than offsetting the rise in receipts from central government taxes and National Insurance contributions.

‘Likewise, the first six months of the financial year saw the highest overall deficit since 2020.’

Addressing the Regional Investment Summit in Birmingham, Ms Reeves said: ‘Our economy is not broken but I do accept that for too many people it’s not working as it should.

‘Bills are too high. Businesses often don’t have the tools that they need to succeed, and people are feeling that they put more in, but they’re getting less out.

‘That has to change. At the Budget last year we fixed the foundations of our economy, returned stability to our economy.

‘And at the Budget next month we will take the necessary steps to secure those foundations and that stability for the future.’

Ramping up her tactic of blaming Brexit, Ms Reeves said: ‘The Office for Budget Responsibility do the forecasts for the economy. And when we left the European Union, or when we voted to leave, they made an estimate about the impact that would have.

‘What they’ve done this summer is go back to all of their forecasts and look at what actually happened compared to what they forecast.

‘What that shows – and what they will set out – is that the economy has been weaker and productivity has been weaker than they forecast, despite the fact that they forecast that the economy would be weaker because of leaving the EU. So, they’ll show those updated forecasts.

‘I am determined that the past doesn’t define our future and that we do achieve that economic growth and productivity with good jobs in all parts of the country, which is why I’m so pleased that today we’re able to secure £10 billion of regional investment, while last month we secured £150 billion of investment from the US, and why we’re making it easier to do business in the UK through deregulation, through planning reform, and also reform to our capital markets.’

Asked about her now-ditched promise not to raise taxes again, the Chancellor told reporters: ‘We’re still awaiting the final forecast from the Office for Budget Responsibility and I’ll set out the Budget next month.

‘There’s a lot of people who claim to know what is going to be in that Budget and what the numbers will say. They don’t. It’s my Budget and they are my choices. And, frankly, some of the speculation is both ridiculous and in some cases damaging, because it’s encouraging people to make decisions that are not the right ones, based on speculation rather than facts.

‘I think everybody recognises that the inheritance that we faced from the last government in terms of the state of the public finances, but also the state of our public services, required a budget last year to put both our public finances and our public services – particularly the NHS – back on a firm footing. We did that last year.

‘Anyone who reads one of your papers or listens to your radio stations will know that this year has been particularly volatile in terms of world events, from Ukraine to the Middle East, to the higher trade tariffs that countries around the world including the UK face. We’re not immune to that, despite the fact that we’re doing trade deals with the EU, India and with the US.

‘Of course, that puts pressure on our economy, as does the increased defence spending to keep us safe in an uncertain world.

‘I’ll set out all my plans based on the world as it is, not necessarily the world as I might like it to be, in the Budget on November 26.’

Nick Ridpath of the Institute for Fiscal Studies (IFS) think-tank said: ‘Today’s data show that over the first half of the year, government borrowing has exceeded the OBR’s March forecast. 

‘This is in spite of the size of the economy exceeding expectations – especially its cash size, as inflation has remained high. 

‘We would ordinarily expect this to come with higher tax revenues, but this fiscal upside has not materialised, at least so far. 

‘This data will be revised and revised again, and we should avoid jumping to firm conclusions based on noisy monthly data releases. 

‘But if this pattern persists – and economic growth delivers less tax revenue than we’d otherwise expect – it could worsen the fiscal arithmetic facing the Chancellor at November’s Budget, and beyond’.

Andrew Wishart, an economist at Berenberg, said higher spending and borrowing would put the Chancellor off-track for her target of funding current spending entirely with tax revenue by 2029-30.

‘Getting back on track to meet this target will likely require about £25billion of tax hikes and/or spending cuts in the 26 November budget with another £10billion necessary to build a reserve for unexpected shortfalls, similar to the £10billion margin that was included in the March 2025 budget,’ he said.

John Wyn-Evans, Head of Market Analysis at Rathbones, said: ‘The latest public sector borrowing figures continue to show strain on the country’s finances…

‘When we factor in the probable downgrade to long-term growth estimates from the OBR which will inform the Chancellor Rachel Reeves’s Budget decision-making, it looks as though taxes will need to rise somewhere in the order of £25bn or more. 

‘Much as many would like that number to be lowered by spending cuts, the mood within the Labour Party does not appear to support much hope on that front.’

Nigel Green, chief executive of global financial advisory giant deVere Group, warned that pensions could be in Ms Reeves’ crosshairs. 

‘Borrowing has surged far beyond expectations while growth remains flat and debt servicing costs are swallowing a larger share of national income,’ he said.

‘When the Treasury finds itself under this kind of pressure, pensions are often first in line. They’re seen as an easy source of revenue that can be tapped quickly, even if the long-term consequences are severe.’

He added: ‘From frozen allowances to lifetime limit changes, history shows that pensioners are the easiest targets. 

‘The political calculation is that they’re less likely to shift their financial arrangements or take to the streets, but that calculation underestimates how much confidence and capital are destroyed in the process.’