Rachel Reeves is facing backlash over allegations that she misled the public regarding the country’s finances leading up to last week’s budget, where she announced a £26bn tax increase.
The Office for Budget Responsibility (OBR), the government’s official fiscal watchdog, recently published a letter raising concerns about the forecasts provided to Reeves in the weeks leading up to the budget.
In the letter, OBR chair Richard Hughes, who is already under scrutiny for a previous leak of budget information, disclosed the forecasts that were usually kept confidential, shedding light on the timeline of events.
Sir Keir Starmer congratulates Rachel Reeves after the budget
The letter outlined a timeline that has put the chancellor in a difficult position:
17 September – first forecast
Initial forecasts indicated a downgrade in UK growth, with a deficit forecast of £2.5bn by the end of the parliament, offset by increases in real wages and inflation.
20 October – second forecast
The deficit turned into a small surplus of £2.1bn, meeting the government’s fiscal targets.
31 October – third forecast
The final forecast before the budget showed a surplus of £4.2bn.
However, accusations arose that Rachel Reeves misrepresented the situation, painting a different picture of a significant financial gap.
13 October
During an interview, Reeves acknowledged the challenges posed by the productivity downgrade but assured that the government was considering tax and spending adjustments.
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27 October
With the Treasury now aware of the surplus, the Financial Times reported a «£20bn hit to public finances.»
4 November
During a news conference, Reeves hinted at tax increases, citing weaker productivity performance and the need for collective contribution.
10 November
In another interview, Reeves mentioned that adhering to Labour’s no-tax-increase promises would necessitate substantial cuts in capital spending. The potential for a nuclear option, the first income tax rise in decades, seemed imminent on the stage.
13 November
Despite reports of a plot to remove Prime Minister Sir Keir Starmer, the Financial Times revealed that the chancellor had abandoned plans to increase income tax due to improved forecasts [which were unchanged since 31 October], bringing the deficit closer to £20bn rather than £30bn.
There are many more questions to be answered in the ongoing controversy surrounding Rachel Reeves and the budget. The stage appeared to be set for a significant decision – the first increase in income tax in many years.
On 13 November, amidst reports of a potential plot to remove Prime Minister Sir Keir Starmer, the Financial Times revealed that the chancellor had abandoned plans to raise income tax due to improved forecasts. These forecasts indicated that the budget deficit was closer to £20 billion rather than the initial estimate of £30 billion.
The Prime Minister’s spokesperson defended Rachel Reeves, stating that she did not deceive voters and clearly outlined her decisions and rationale during the budget presentation. However, the issue garnered significant attention in the media, with newspapers prominently featuring the story. The Sun’s headline on Saturday, «Chancer of the Exchequer – fury at Reeves ‘lies’ over £30bn black hole,» was particularly damning for government officials.
Critics pointed out the chaotic lead-up to the budget, characterized by conflicting briefings and counter-briefings that now seemed nonsensical. Tory leader Kemi Badenoch called for Reeves to resign, accusing her of misrepresenting the Office for Budget Responsibility’s forecasts and basing the budget on falsehoods.
Renowned economist Paul Johnson, former director of the Institute for Fiscal Studies (IFS), suggested that the chancellor’s news briefing on 4 November was misleading. He noted that the briefing aimed to support the narrative of a significant fiscal gap requiring substantial tax hikes, despite the absence of such a gap.
Rachel Reeves faced intense scrutiny in subsequent interviews, particularly concerning the economic growth generated by her budget measures and the government’s failure to address escalating welfare spending. Questions also arose about the confusion caused by dire warnings in the market and among voters.
In response, Reeves emphasized her commitment to safeguarding public spending on essential services like schools and hospitals. She acknowledged considering an income tax increase and explained that OBR forecasts can change following the submission of planned measures by the Treasury. However, uncertainties remained, and further inquiries were anticipated.
As Rachel Reeves prepares for a series of interviews on Sunday, the focus will likely be on clarifying the specifics of her budget proposals, addressing concerns about future tax implications, and dispelling any lingering doubts about the budget’s impact on the economy. The aftermath of the budget announcement continues to reverberate, with the government facing mounting pressure to provide clear, transparent explanations for its fiscal decisions.
Rachel Reeves is fighting claims that she «lied» to the public about the state of the finances in the run-up to last week’s budget – in which she raised £26bn in taxes.
It follows a letter published by the Office for Budget Responsibility (OBR), the official watchdog which draws up forecasts for the Treasury, published on Friday.
In it, OBR chair Richard Hughes (who is already under fire for the leak of the budget measures) said he’d taken the unusual step of revealing the forecasts it had submitted to Rachel Reeves in the 10 weeks before the budget, and which is normally shrouded in secrecy.
The OBR sent this table revealing its timings and outcomes of the fiscal forecasts reported to the Treasury
Sir Keir Starmer congratulates Rachel Reeves after the budget
The letter reveals this timeline, which has plunged the chancellor into trouble:
17 September – first forecast
At this point, it was already known that the UK’s growth forecast would be downgraded. The chancellor was told that the «increases in real wages and inflation» would offset the impact of the downgrade. The deficit forecast by the end of the parliament was £2.5bn.
20 October – second forecast
By this point, that deficit had turned into a small surplus of £2.1bn – i.e. the productivity downgrade has been wiped out and «both of the government’s fiscal targets were on course to be met».
31 October – third forecast
The final one before the Treasury put forward its measures. The finances were now net positive with a £4.2bn surplus.
But the accusation is that Rachel Reeves was presenting an entirely different picture – that she had a significant black hole which needed to be filled.
13 October
Ms Reeves tells Sky’s deputy political editor Sam Coates the productivity downgrade has been challenging but added: «I won’t duck those challenges. Of course we’re looking at tax and spending.»
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27 October
With the Treasury now aware the deficit had been wiped out, the Financial Times was briefed about a «£20bn hit to public finances.»
4 November
Ms Reeves gave a dawn news conference in Downing Street, setting the stage for tax rises. She says she wants people «to understand the circumstances we are facing… productivity performance is weaker than previously thought,» adding that «we will all have to contribute».
10 November
Ms Reeves tells BBC 5Live that sticking to Labour’s promises not to raise taxes would require «things like deep cuts in capital spending». The stage seemed set for the nuclear option – the first income tax rise in decades.
On 13 November, after headlines about a plot to oust Prime Minister Sir Keir Starmer, the Financial Times reported that the chancellor had dropped plans to raise income tax because of improved forecasts [which we now know hadn’t changed since 31 October], putting the black hole closer to £20bn than £30bn.
The prime minister’s spokesperson has insisted Rachel Reeves did not mislead voters and set out her choices, and the reasons for them, at the budget. But the issue has had enormous cut-through, with newspapers giving it top billing. The Sun’s Saturday front page headline – «Chancer of the Exchequer – fury at Reeves ‘lies’ over £30bn black hole» – will not have been pleasant reading for ministers. She now has questions to answer about the chaotic run-up to the budget – of briefing and counter-briefing, which critics say now makes little sense. Tory leader Kemi Badenoch said on Saturday: «We have learned that the chancellor misrepresented the OBR’s forecasts. She sold her ‘Benefits Street’ budget on a lie. Honesty matters… she has to go.» Economist Paul Johnson, former director of the respected Institute for Fiscal Studies (IFS), told The Times the chancellor’s 4 November news briefing «probably was misleading. It was clearly intended to have an impact and confirm what independent forecasters like [the National Institute of Economic and Social Research] and the IFS had been saying. «It was designed to confirm a narrative that there was a fiscal hole that needed to be filled with significant tax rises. In fact, as she knew at the time, no such hole existed.»
Rachel Reeves is doing a round of morning interviews on Sunday in which she’ll be grilled over which of her budget measures will generate economic growth (which the government claimed was its number one priority), why they have been unable to tackle rising welfare spending and now about why markets and voters were left confused by dire warnings. She may claim that she never personally said there was a specific £30bn black hole or that the extra headroom generated by the tax rises will ensure she does not have to come back for more next year. In an interview with The Saturday’s Guardian, Ms Reeves said she had «chosen to protect public spending» on schools and hospitals in the budget. She confirmed an income tax rise had been looked at, and insisted that OBR forecasts «move around» after the Treasury has submitted its planned measures. There are plenty more questions to come.
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Por Michael Bunting
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