Rachel Reeves denies lying about Budget black hole to justify £26bn tax hikes
Rachel Reeves has denied lying publicly about the country’s finances to justify a £26bn tax increase in the Budget.
The Chancellor is facing calls to resign and the Conservatives have called for an investigation by the Financial Conduct Authority into allegations he exaggerated the size of the deficit to win support for his budget.
Asked on Sunday whether she had lied to the public by not making it clear that it had a £4bn surplus rather than a deficit, Ms Reeves said: “Of course I didn’t lie.”
He also said Prime Minister Keir Starmer had been fully briefed on pre-Budget developments and that they were a “partnership”.
He hit back at the Institute for Fiscal Studies (IFS), the UK’s most respected economic think tank, after it said on Thursday better-than-expected forecasts meant Ms Reeves had not been given a “major fiscal repair job” in the Budget.
On Sunday the chancellor said that even with a £4bn surplus it would still have the lowest headroom any chancellor has secured against his fiscal rules, and that it also does not take into account decisions such as cutting winter fuel payments or a U-turn on welfare reform or the removal of the two-child benefit cap.
Ms Reeves told the BBC’s Laura Kuenssberg program on Sunday: “If I were on this program today and I said a £4bn surplus was fine, there was no economic repair work to be done, I think you would rightly say that that wasn’t good enough. That would be the lowest surplus any chancellor has ever delivered against their own fiscal rules.”
He also denied breaking Labor’s manifesto pledge not to raise taxes, but admitted asking people to pay more.
Sir Keir will defend the Budget in a major speech on Monday, which will be seen as an attempt to support his chancellor. This was despite Ms Reeves insisting on Sunday that she would remain chancellor for years to come.
Confirming that Sir Keir knew the true state of the finances, he said: “We are a partnership and we have a Budget board, Prime Minister Keir and I have met regularly to discuss the Budget and the elections, because these are the elections of this government and I am really proud of the choices we have made to reduce waiting lists, reduce inflation and increase resilience in the economy.”
Ms Reeves also defended the decision to spend billions of pounds to remove the two-child benefit cap, saying the government was “choosing children”.
He said: “The people I was thinking about were the children I know in my constituency who went to school hungry, who went to bed in cold and damp homes, and from April next year these parents will have a bit more support to help their children.”
But Conservative leader Kemi Badenoch accused the chancellor of “increasing taxes for welfare” and said he “should resign”.
Ms Badenoch said: “The Chancellor held 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 to provide social welfare… IISo he should resign.”
He said the shadow chancellor, Sir Mel Stride, had called for an investigation into the FCA: “Because it seems like what he’s doing is trying to change his budget – telling everyone how awful it’s going to be and that they won’t be so upset when he finally announces it – and yet trying to sneak in these tax rises for welfare.
“We shouldn’t be running this process this way. We need people to trust our system,” he added.
The furious row erupted on Friday after the Office for Budget Responsibility (OBR) revealed that it had notified the chancellor as early as September 17 that the budget deficit had improved, and that it had informed him in October that the budget had been eliminated.
Despite this, in a major speech in Downing Street on November 4, Ms Reeves said weak economic productivity had “consequences for the public finances” and suggested tax rises were still needed to plug the £20bn deficit.
Although the Office for Budget Responsibility (OBR) issued a productivity downgrade that wiped out £16bn of expected tax revenue, most of this was canceled out by inflation and higher wage growth, leaving a surplus of £4.2bn in defiance of Ms Reeves’ borrowing rules.
