Labour admits Brexit damage whilst tightening immigration rules that worsen it
Rachel Reeves finally acknowledges the economic toll of leaving the EU, but government policy continues to deepen the very restrictions driving Britain's persistent inflation
On Tuesday, Rachel Reeves admitted what economists have been documenting for years: Brexit's impact on the British economy has been "severe and long-lasting". By Thursday, the Home Secretary announced tougher immigration controls, including A-level English requirements for skilled workers.
Spot the problem.
The government has finally acknowledged that leaving the EU single market created persistent economic damage through labour shortages and trade barriers. Its immediate response? Make those labour restrictions tighter. This whilst promising to "Get Britain Building" through 1.5 million new homes.
This isn't political inconsistency. It's economic incoherence. Labour admits restrictions are causing measurable harm, then deepens them. Understanding why requires examining how Brexit actually damages the economy, what's happening in sectors like construction, and the political fear driving this contradiction.
How Brexit drives persistent inflation
Britain's inflation problem isn't bad luck. It's structural, and the mechanism is specific.
Adam Posen at the Peterson Institute identified that UK core inflation began diverging from European levels by mid-2021—months before Russia invaded Ukraine. This timing matters. It demonstrates Brexit-specific damage, distinct from global shocks hitting all economies.
The mechanism operates through two channels. First, European workers departed. Pre-referendum, British employers could hire across the EU to fill gaps in hospitality, healthcare, construction. That pipeline closed. Although non-EU immigration increased, economist Jacob Kirkegaard notes these workers often lack equivalent skills for available roles, creating bottlenecks that force wages up.
Second, traditional trade flows broke. Fresh food and components requiring swift movement face new barriers. Supply bottlenecks translate directly into consumer price rises. From farms unable to harvest to factories awaiting parts to building sites lacking tradespeople, costs climb throughout the economy.
The data confirms this. UK inflation: 3.8 per cent. EU average: 2.6 per cent. Eurozone: 2.2 per cent. This isn't temporary—it's persistent. The Centre for Economic Performance at the London School of Economics calculated that Brexit-related pound depreciation increased consumer prices by 2.9 per cent, costing households £870 annually. Even accounting for pandemic and energy crisis, British inflation remains stubbornly higher than comparable European economies. Labour market restrictions are a documented driver.
Building without builders
Construction reveals the contradiction with brutal clarity.
The industry needs 217,000 to 225,000 additional workers by 2027 just to meet current demand—before Labour's acceleration plans. Pre-Brexit, 40 per cent of construction workers came from the EU. That pipeline closed. Since 2017, EU-born construction workers have been in steady decline. Project timelines slip. Labour costs surge as firms compete for shrinking pools. Eastern European tradespeople departed, leaving major projects struggling for electricians, bricklayers, carpenters.
Now observe government policy. Starmer has made "Get Britain Building" central, with mandatory targets of 370,000 homes annually. Rayner announced planning reforms, grey belt development, £100 million for planning officers. The ambition is real.
Yet this same government just raised English language requirements from B1 to B2 standard, increased the Immigration Skills Charge by 32 per cent, and maintained salary thresholds of £38,700 that most skilled trades don't meet. Louise Haycock at Fragomen warned these changes could "cut off critical supply in sectors where alternative UK talent pipelines do not yet exist."
The arithmetic is unforgiving. You cannot simultaneously declare a mission to accelerate construction whilst restricting access to the workforce required to build anything. The economics doesn't function. Industry figures state plainly: without significant immigration reform or a training programme producing immediate results, the housebuilding targets are fantasy.
Fear of Farage
The contradiction becomes comprehensible—if not defensible—through political calculation.
Labour faces electoral threat from Reform UK, which gained 650 council seats in May's elections on immigration restriction and cultural conservatism. Nigel Farage, never holding government office, wields influence through Reform's appeal to migration-concerned voters.
Labour's strategy: acknowledge Brexit's economic damage—position it as Farage's legacy—whilst adopting restrictive immigration policies to neutralise Reform's appeal. Reeves frames Brexit as the source of fiscal problems requiring tax rises, hoping voters blame Farage. Mahmood announces tougher visa requirements, signalling Labour shares migration concerns.
This creates a logical trap. If Brexit-related labour restrictions cause documented harm—driving inflation higher than Europe, preventing needed housing construction, constraining public services—rational policy response is easing those restrictions where economically beneficial. Instead, Labour deepens them.
The political logic is questionable. Reform voters are unlikely to credit Labour for copying their policies—they'll vote for the original. Moderate voters concerned about living costs may notice government policy actively worsens the inflation problem it claims to solve. Economically literate observers see that blaming a man never in government for consequences of policies both major parties implemented is difficult to sustain.
Moreover, Starmer promised to "make Brexit work" during the campaign. The bargain: Labour accepts Brexit occurred but manages it competently. Admitting severe damage whilst worsening harmful elements doesn't fulfil that bargain—it compounds the original mistake with fresh errors.
The solutions Labour won't consider
The alternatives are well understood, if politically difficult.
Rejoining the single market would eliminate non-tariff barriers particularly damaging to Britain's service-dominated economy. The Institute for Fiscal Studies notes single market membership substantially reduces trade costs in ways no free trade agreement replicates. For UK service exports—accounting for significant trade surplus—regulatory alignment offers benefits no standalone deal can match.
Customs union membership would eliminate rules of origin checks and bureaucracy, removing obstacles that mean British firms face tariffs on EU exports despite "zero-tariff" agreements. It would make exporting viable again for smaller firms that abandoned European markets because post-Brexit paperwork makes trade uneconomical.
Most immediately, restoring freedom of movement—or creating flexible work visa systems—would address acute labour shortages in construction, hospitality, healthcare. This wouldn't prevent long-term domestic training but would provide immediate workforce for current economic demands.
Economists estimate leaving the single market and customs union reduced UK GDP by 2 to 4 per cent—permanent national income loss. The Economics Observatory concluded in July that whilst the UK-EU "reset" may warm diplomacy, economic implications remain modest because political red lines preclude meaningful change.
Labour has ruled out single market or customs union membership, prioritising regulatory sovereignty over economic optimisation. This creates current reality: a government acknowledging problems but refusing effective solutions, leaving only marginal adjustments. The May summit produced agreements on food standards and youth mobility—welcome but limited measures falling far short of addressing structural trade barriers and labour restrictions driving economic underperformance.
Acknowledged decline
The consequences are predictable.
Britain's inflation will remain persistently higher than European peers whilst labour bottlenecks and trade frictions continue. Construction targets will be repeatedly missed as workforce shortage worsens. Public services struggle with staffing gaps, particularly healthcare and social care. Living costs remain elevated compared to similar European economies, eroding standards even if headline GDP growth appears reasonable.
Politically, this strategy risks creating exactly the outcome Labour hopes to avoid. By admitting Brexit's damage whilst deepening restrictions, the government hands Reform UK a powerful argument: the establishment acknowledges economic problems but refuses obvious steps—rejoining the single market, enabling European workers to return—because of ideological commitment. Farage positions himself as the honest voice naming both problem and solution Labour won't consider.
The fundamental issue is logical consistency. You cannot simultaneously identify a problem, understand its causes, then intensify those causes expecting different outcomes. Admitting Brexit-related labour restrictions drive persistent inflation, then raising language requirements and visa costs, guarantees the inflation problem continues. Declaring ambitions for 1.5 million homes, then restricting construction workforce access, guarantees those homes won't be built.
Reeves is right that Brexit's impact has been severe and long-lasting. The Office for Budget Responsibility estimates leaving the EU reduced Britain's economy by roughly 4 per cent compared to remaining—permanent loss affecting public services and household standards. But acknowledging reality only matters if it leads to policy corrections addressing identified problems.
Instead, Labour appears trapped between economic evidence and political fear—admitting damage to explain fiscal difficulties requiring tax rises, whilst adopting Farage's restrictive policies to neutralise Reform. This satisfies neither economic requirements nor political objectives. The economy continues underperforming because government deepens rather than eases restrictions causing documented harm. Political threat from Reform persists because voters see Labour copying rather than challenging their agenda.
Until government confronts this contradiction—either defending Brexit consistently despite economic evidence, or taking meaningful steps to address labour market and trade restrictions causing measurable damage—Britain remains stuck with acknowledged decline. Problems named, causes understood, policy making them worse. That's not pragmatism. It's incoherence, and the economy keeps paying for it.