Reeves accused of misleading public on Budget black hole to justify £26bn tax raid
Rachel Reeves has been accused of misleading the public about the country’s finances to justify a £26bn tax increase in her Budget.
There were dire warnings that the Chancellor was facing a £20bn black hole, and in his extraordinary speech on November 4 he signaled that higher taxes were likely and blamed Donald Trump’s tariff war and the budget watchdog’s expected fall in economic productivity for the “tough choices” he would have to make.
But it emerged Ms Reeves’ comments came just days after the Office for Budget Responsibility (OBR) told her the economic picture had improved significantly, with a surplus of £4.2bn instead of a deficit.
Conservative Party leader Kemi Badenoch has called for the sacking of the chancellor, whose budget is seen as a make-or-break for his political future, saying he “lied to the public to justify record tax rises” and “bribed Labor MPs to save his own life”.
Downing Street denied Ms Reeves had misled the public and markets. “I do not accept this,” the prime minister’s official spokesman said.
But Paul Johnson, former chairman of the Institute for Fiscal Studies (IFS), said: “I think so [her November 4 press conference] “It was probably misleading.”
He said his remarks were “clearly intended” to confirm what independent forecasters such as the National Institute for Economic and Social Research (Niesr) had said after predicting that Ms Reeves would have to fill a multibillion-pound black hole in the country’s finances.
Mr Johnson said the speech was designed to “confirm the narrative that there was a fiscal black hole that needed to be filled with significant tax increases. In fact there was no such hole as he knew at the time”.
The row comes after a new letter sent by the OBR to the Treasury Select Committee on Friday revealed that the chancellor was advised as early as September 17 that the funding gap would be much smaller than the £2.5bn initially thought. In October, it was said that he had completely disappeared.
When it later emerged on November 13 that Ms Reeves had abandoned plans to raise income tax, Treasury sources said she had decided against the move after receiving better-than-expected economic forecasts from the OBR.
But the OBR claimed it had not presented a new forecast to ministers in November.
“No changes were made to our preliminary measures estimates after 31 October,” the watchdog’s letter to the Treasury Select Committee said.
Responding to the revelations, the IFS’s current director, Helen Miller, tweeted: “O [Rachel Reeves] no major financial overhaul has been given… So why the odd breakfast TV speech?” His colleague, economist Ben Zaranko, said he was “baffled” and asked: “Was the plan to get everyone to expect a big income tax increase, then surprise them by not doing it that day…?”
Shadow chancellor Sir Mel Stride said: Telegram That Labour’s story “doesn’t add up”. “This was a complete smokescreen. Labor knew all along there was no need to raise taxes and break promises,” he said.
But Niesr deputy director Stephen Millard said Ms Reeves’ actions could be looked at from both perspectives.
He said: “It could be argued that the Chancellor misled the public and, more importantly, the financial markets in the run-up to the Budget, and particularly in his speech on 4 November, by presenting the fiscal situation as bleak and emphasizing the need for significant tax increases. However, it is equally possible that he wanted to prepare the public for the major tax increases in the Budget that would be required to create a greater ‘buffer’ against his fiscal rules, as NIESR argues in our Autumn Economic Report. Outlook.
“If that were the case, it would actually be important to signal to markets that he is serious about raising taxes, which is what the speech on November 4 did. Although we think the £22bn buffer is not enough – we have advocated £30bn – increasing the size of the buffer makes it less likely that the OBR’s March forecast will require another response from him (as he did in March this year), allowing him to stick to his promise of just one fiscal event next year.”
On Wednesday Ms Reeves announced a £26bn tax increase in what she called the “Labour values” Budget. To appease the left in his party, he announced a package of measures that included 43 separate tax increases. According to Sir Mel, this has increased the tax burden in the UK to the highest level in history.
This included freezing income tax thresholds and forcing millions of people to pay higher taxes.
The tax raid will help cover a £73bn increase in welfare spending following the removal of the two-child benefit cap and an uprising against Labor MPs’ attempts to drop the welfare bill before the summer. Ms Reeves also gave herself more ‘headroom’, against borrowing rules.
A Treasury spokesman said the Chancellor made his budget choices to reduce the cost of living, shorten hospital waiting lists and double headroom to reduce the cost of our debt.
“We take budget security extremely seriously and believe it is important to maintain a dedicated space for Treasury-OBR policy and forecast discussions, so we welcome the OBR’s confirmation that this will not become regular practice,” the spokesman added.
