Reeves will be lucky if the only punishment for this shameful deceit is the loss of her job: DAN HODGES

There is a debate this morning about whether Rachel Reeves can survive the revelation that she deliberately lied to voters, markets and parliament about her £26bn budget blow to Britain’s working people. But this is the wrong question.

The real question is whether the Chancellor will have to resign or go to prison.

The facts are indisputable. On September 17, Reeves was given good news. The Office for Budget Responsibility (OBR) has reported that the £20bn budget black hole it believed it faced had actually fallen to £2.5bn as a result of changes in real wages and inflation.

But for some inexplicable reason, he ignored the new positive prediction. On November 4, he gave a bizarre “scene of action” speech in which he offered a chilling analysis of the country’s financial situation.

‘It is my job to take the world as we find it,’ he said, ‘not as I would like it to be. Not for comment or speculation. But take action.”

Immediately afterwards, his aides explained that this meant income taxes would have to increase. Then Reeves panicked. In the face of opposition from its own supporters and a potentially existential backlash from Labour’s focus groups over the manifesto breach, it was hastily announced that basic tax rates would not be raised at all.

At this point, the markets became active. Faced with the Chancellor’s apparent loss of courage, government bond yields soared, adding to already mountainous government debt.

Someone at the Treasury hurriedly picked up the phone from Alex Wickham, a journalist for Bloomberg’s financial and political news service, and informed him that the OBR forecast (then still highly secretive) gave the Chancellor more fiscal room to manoeuvre.

They insisted that the decision to reduce the increase in tax rates was an economic decision, not a political one. So Reeves lied. And then I lied. And then I lied. Then I lied again.

He insisted during the election that he would not increase taxes on employees. He underlined that commitment in last year’s budget, saying: ‘I have concluded that extending the threshold freeze would harm working people.’

A few days later he tripled down and said: ‘Public services now need to live within their means because I’m really clear, I’m not going to come back with more debt or more taxes.’

He then decided that utilities would not have to live within their means. The freeze on the tax threshold will be extended. Taxes collected from working people will increase. And as we now know, the explanations for these increases were also completely fictional.

So Rachel Reeves didn’t lie. He lied about raising taxes. He lied about raising these things over working people. And then he lied about the real reason he lied.

But that’s not where the treachery ends. As the OBR confirmed, the Chancellor was not dealing with the world as it was. He deliberately distorted the financial picture to justify the tax raid.

Contrary to his claim, he was constantly ‘commenting and speculating’, first to manage political expectations and then to stabilize markets when that management went awry. With potentially dire consequences.

Yesterday, Shadow Chancellor Mel Stride wrote to Financial Conduct Authority (FCA) chief Nikhil Rathi, demanding an investigation into a clear attempt to manipulate markets through the selective and unauthorized briefing of highly sensitive data; this is a prima facie violation of regulatory law.

The FCA’s rules are clear. ‘Criminal sanctions for insider trading and market manipulation can lead to imprisonment of up to ten years and unlimited fines.’ Reeves knows this very well.

In 2005, while working at the Bank of England, he wrote a paper: ‘Do financial markets respond to Bank of England communications?’

Rachel Reeves during her budget speech in the House of Commons on Wednesday

In it he noted: ‘The idea that transparency is always good is not universal.’

He also looked at how speech affects markets. His conclusion was that they had ‘little impact’, but then added: ‘We do not suggest that individual speeches or comments have never materially affected market prices. Indeed, various speeches were made on days when there were big movements in the financial markets.’

In previous scandals, Reeves has feigned ignorance, such as the recent furor over licensing. But it’s hard to see how he could repeat the same trick this time. He’ll be damned if he admits to allowing sensitive market data to be released. And if he denies involvement, that confirms an official leak and requires a full investigation.

This weekend, Labor MPs were alarmed and confused by how their Chancellor was precipitating a new government crisis.

‘Why did he do this?’ someone shouted. ‘How did he think this wouldn’t come out?’

The answer is that Reeves’s struggle for political survival has become increasingly selfish. Ministers I have spoken to in recent weeks have speculated that he would build a ‘war chest’ to be opened ahead of the next election.

As someone said, ‘This fiscal gap line is nonsense. What he wants is a large reserve that he can put towards tax cuts in the run-up to election day.’ This essentially means trying to buy voters off with their own money.

Rachel Reeves was always going to face a reckoning for her deception. As it stands, he’ll be lucky if that only involves losing his job and not his freedom.