Harry Farleypolitical correspondent
ReutersDowning Street has denied that Chancellor Rachel Reeves misled the public about the state of the public finances in the run-up to this week’s Budget.
There were warnings ahead of the Budget that Reeves could face a shortfall of up to £20bn to meet his rule of not borrowing for everyday spending.
But in a letter to MPs, the chairman of the Office for Budget Responsibility (OBR) said he had told the chancellor in mid-September that the gap would be much smaller.
Conservatives accused Reeves of giving an overly pessimistic impression of public finances as a “smokescreen” for raising taxes.
Conservative leader Kemi Badenoch said the letter showed Reeves had “lied to the public” and should be sacked.
The weeks leading up to the budget were dominated by speculation that the chancellor would increase income tax rates, breaking a Labor manifesto promise.
On 4 November, Reeves used a rare pre-Budget speech in Downing Street to warn that UK productivity was weaker “than previously thought” and that this “has consequences for public finances too, in the form of lower tax revenues”.
Then, on 10 November, he told BBC Radio 5 Live: “Of course it would be possible to meet the manifesto commitments, but that would require things like deep cuts to capital spending.”
These comments, along with his speech, fueled speculation that he needed to raise significant sums to comply with his fiscal rules.
However, the Office for Budget Responsibility has now confirmed that while it did indeed reduce productivity, it also predicted this would be “offset” by higher wages which would increase the government’s tax revenue.
That meant it had a surplus to meet its two fiscal rules.
In a letter to the House of Commons Treasury select committee, OBR chairman Richard Hughes revealed he told the chancellor on September 17 that the public finances were in better shape than previously thought.
The letter also reveals that on 31 October the Treasury OBR was on track to comply with both of the Chancellor’s fiscal rules.
But Reeves went on to indicate that he was likely to increase income tax rates.
At his Downing Street press conference, he said: “It is now clear that productivity performance… is weaker than previously thought.”
He added: “What I want people to understand before that budget is the circumstances we face.”
However, the Treasury later refrained from increasing income tax rates, with government sources claiming this was because the OBR’s forecasts were better than expected.
It has now emerged that the OBR’s forecasts did not change significantly in the run-up to the budget.
Conservative shadow chancellor Sir Mel Stride said that while Reeves had repeatedly talked about reduced productivity, he had “failed to mention” the offsetting effect of higher wages in the forecast.
He added: “It was all a smokescreen. Labor knew from the start they didn’t need to raise taxes or break their promises.
“It appears the country was deliberately misled to try to explain away Labour’s decision to spend billions more on social care.”
Asked whether Reeves had misled the public and financial markets, the Prime Minister’s spokesman said: “I don’t accept that.”
He added: “Like her [Reeves] in his speech here (Downing Street), he spoke about the challenges facing the country and set out his decisions incredibly clearly in the Budget.
He added that the government had increased scope for the Treasury to comply with fiscal rules, which would create “certainty and stability for business”.
