Chancellor Rachel Reeves has sparked controversy by urging the Office for Budget Responsibility (OBR) to include the economic benefits of a proposed EU youth mobility scheme in its upcoming November Budget forecasts. The scheme, which would allow individuals aged 18 to 30 from the EU to live and work in the UK temporarily for two years without the right to remain permanently, is presented by Reeves as a way to boost growth and potentially reduce the need for tax increases. However, experts and opposition figures have been quick to criticise the plan, describing it as "desperate stuff" with minimal economic impact.

The plan faces scepticism largely due to its reciprocal nature, which would allow a similar number of young British people to work in the EU, thereby potentially limiting any net fiscal gain. Paul Johnson, former head of the Institute for Fiscal Studies, estimated that even on a generous assumption of 50,000 young Europeans contributing £10,000 each in tax annually, the net gain would amount to only around £0.5 billion, a figure regarded as almost negligible against the broader fiscal challenges. Shadow Business Secretary Andrew Griffith has echoed this sentiment, suggesting the scheme is unlikely to significantly help the economy grow, framing it either as a modest exchange initiative or an open-door immigration policy.

Reeves is confronting a difficult fiscal landscape, with the need to address an anticipated £50 billion shortfall in the November Budget. Much depends on how the OBR assesses key government policies, including the youth mobility scheme and broader trade and planning reforms. The Chancellor is bracing for a downgrade in the OBR’s productivity forecasts, a vital measure of economic output per worker, which currently stands at an optimistic 1.1% growth annually. Even a minor downward adjustment, such as a 0.1% reduction, could force Reeves to find an additional £9 billion to balance the books, adding to the pressure for tax rises. The OBR has already admitted to over-optimism in previous growth forecasts, signalling a less favourable economic outlook ahead.

This initiative is part of a wider effort by Reeves to stimulate economic recovery and improve public finances. Earlier in the year, she announced significant measures including plans to cut 10,000 civil service jobs and reduce government running costs by 15% to enhance the UK’s economic viability and living standards. Her 2024 budget also included the largest tax rise since 1993, featuring an increased Energy Profits Levy targeting oil and gas companies and the abolition of the non-domiciled tax regime for wealthy foreigners. These steps were expected to generate £12.7 billion over five years, reflecting her stance that those making the UK their home should responsibly contribute to its tax base.

While the youth mobility scheme draws criticism for offering limited fiscal gain, it is viewed by some as having ancillary benefits related to labour market fluidity. For example, the House of Commons Library highlighted that expanding youth mobility could aid sectors like hospitality by reducing exploitation risks linked to employer-sponsored visas, although these benefits are more qualitative than quantitative in fiscal terms.

Meanwhile, Reeves has also prioritised domestic employment issues, launching a £240 million ‘Get Britain Working’ programme focused on reducing economic inactivity among disabled individuals and those with long-term illnesses. This initiative demonstrates a broader commitment to increasing employment levels and integrating support mechanisms, reinforcing the Chancellor’s vision of a Britain where “those who can work, will work.”

Despite these efforts, the overall economic picture remains challenging. The OBR's forecast for UK economic growth was halved in early 2025 due to rising global uncertainties, with government borrowing projected to reach £137.3 billion for the fiscal year 2024/25, up from earlier estimates. In response, Reeves has acknowledged the need for swift and difficult fiscal decisions to navigate these uncertain times.

In summary, while Chancellor Rachel Reeves champions the EU youth mobility scheme as a lever to boost growth and mitigate tax rises, expert analysis emphasises the scheme's limited financial returns and reciprocal constraints. Her broader fiscal strategy involves significant tax increases and spending cuts, alongside focused employment initiatives, all within a context of subdued productivity growth and economic uncertainty that make balancing the budget a formidable challenge.

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Source: Noah Wire Services