Call for probe into ‘possible market abuse’ in Budget run-up

Shadow chancellor Mel Stride has called on the UK’s financial regulator to investigate “possible market abuse” by people working at the Treasury and Downing Street during the preparations for the Budget.

The move comes after Chancellor Rachel Reeves denied misleading the public about the country’s financial situation after she and officials were told they were better off than generally thought; but Reeves continued to give briefings that the Conservative Party described as overly pessimistic.

Conservatives called on him to resign and Stride sent a letter A request has been made to the Financial Conduct Authority (FCA) for an investigation into potential market manipulation.

“Confidential market-sensitive information appears to have been distorted, leaked and misused, and markets, businesses and families have paid the price,” he claimed.

The FCA regulates financial services firms in the UK and part of its remit is to address and investigate reports of market abuse such as insider trading or market manipulation.

In his letter to the head of the regulator, Stride outlined briefings on the country’s finances, economy and speculation about tax increases in preparation for the budget.

“It is becoming increasingly clear that the Chancellor is presenting an inaccurate picture of the economic and financial situation and that this is motivated by political considerations,” he wrote.

He claimed that “leaks and deviations” from the Treasury had led to market speculation being “rampant and gilded markets volatile”.

The FCA confirmed it had received the letter and the BBC understood it would respond.

Budget preparations and the subsequent reaction of financial markets were closely monitored, revealing the impact of tax and spending policies on the UK’s borrowing costs.

Many governments sell bonds (essentially debt securities) and pay interest in return to raise money for public spending.

But how convincing markets are of the chancellor’s control of the finances may affect how much it costs governments to borrow.

The cost of government borrowing fell slightly after Reeves’ Budget on Wednesday, signaling a vote of confidence in his policy announcements.

Reeves announced a series of tax increases and extended a freeze on the thresholds at which people pay tax and higher income tax rates for another three years; This means millions of people will withdraw and have to pay more out of their pay packets. It also removed the two-child benefit limit.

But the chancellor has faced accusations that he misled the public about the state of public finances.

Reeves has repeatedly spoken of reducing Britain’s economic productivity, which would make it harder for it to comply with borrowing rules; This fueled speculation that income tax rates would be raised, which broke the manifesto’s commitment.

He made a rare pre-Budget speech in Downing Street on November 4, warning that the UK’s productivity was weaker “than previously thought” and that this “will have consequences for the public finances, such as lower tax revenues”.

Later, on 10 November, Reeves told the BBC: “Of course it might be possible to stick to the commitments in the manifesto, but that would require things like big cuts in capital spending.”

But it has since emerged that the Office for Budget Responsibility (OBR) told the Treasury on October 31 that it was on track to meet the main borrowing rule with £4.2bn, although this was less than the £9.9bn buffer Reeves left himself with last year.

OBR chairman Richard Hughes revealed in a letter to the House of Commons Treasury select committee that he had also told the chancellor on 17 September that the public finances were in better shape than generally thought.

The SNP, as well as the Conservatives, have called on the FCA to examine allegations of “deliberately false and misleading” briefings.

Reports ahead of budget preparations had suggested the OBR could face a £20bn gap in meeting the chancellor’s tax and spending rules as a result of the drop in productivity.

Speaking to the BBC on Sunday, Reeves hit back at critics by arguing that the £4.2bn gap he has is not “an extra £4bn to play with” but is instead a reduction from the £9.9bn buffer he had last year.

“I clearly could not present a budget with only £4.2bn of headroom,” he said; for this would be “the lowest surplus any chancellor has ever made” and would “rightly” be subject to criticism for having too little headroom.

He said: “I’ve been clear that I want to increase that resilience and that’s why I’ve taken these decisions to increase that gap to £21.7bn.”

Conservative leader Kemi Badenoch called on Reeves to resign, saying: “The Chancellor called an emergency press conference telling everyone how bad the financial situation was and now we have seen the OBR tell him the exact opposite.”

“He was raising taxes for social welfare.”