Downing Street has been forced to defend Chancellor Rachel Reeves after she was accused of misleading voters about her manifesto-breaking Budget tax rises. Ms Reeves repeatedly claimed figures from the Office for Budget Responsibility (OBR), the official watchdog, would show that tax rises were needed. But when the figures were actually published this week, they showed the opposite.
Conservatives said the Chancellor had “lied” to voters. Conservative leader Kemi Badenoch said: “Yet more evidence, as if we needed it, that the Chancellor must be sacked. For months, Reeves has lied to the public to justify record tax hikes to pay for more welfare.” Shadow Chancellor Mel Stride said: “The OBR’s forecasts are being used as an excuse for the Chancellor’s failures and her impending tax rises.” Eliott Keck, campaigns director of the Taxpayers Alliance, said: “Too afraid to make the positive case for their course of action, they had to spin a complex web of duplicity to hoodwink the public”.
Asked directly if the Chancellor “misled MPs and the markets” before increasing taxes by £26 billion, the Prime Minister’s spokesman said today: “The Chancellor set out the challenges facing the country.” And he added: “What the Chancellor set out was the context the country was facing.”
For weeks in the run-up to the Budget, Ms Reeves argued that the Office for Budget responsibility was warning productivity was lower than expected, and this would force her to put taxes up. But the OBR official figures published alongside the Budget this week showed the impact of inflation, and of tax rises already in place (thanks to the freeze in income tax thresholds), more than made up for the lost revenue.
In a speech on November 4, Rachel Reeves said: “The Office for Budget Responsibility – the UK’s public finance watchdog – will set out the conclusions of their review of the supply side of the UK economy. I will not pre-empt those conclusions but it is already clear that the productivity performance …is weaker than previously thought.”
She explained: “It has consequences for the public finances too, in lower tax receipts.”
In an interview on November 10, she also highlighted the productivity figures. She said: “The independent forecaster, the Office for Budget Responsibility, has done a review of how productive the economy is.
“They’ll be very clear this is based on our productivity performance of the last few years under the last government, but they’re using it to make projections about productivity in the future, and that does mean lower growth, and we have to accommodate that, because we have to live within our means.”
And in her Budget speech this week, the Chancellor insisted: “The OBR (Office for Budget Responsibility) says that its productivity forecast will mean £16 billion less in tax receipts by 2030.”
But what the OBR really said is quite different. The OBR said in its official report this week: “The economy changes described above boost overall tax receipts relative to our March forecast by £16 billion in 2029-30, before accounting for Budget policies.
“In isolation, the reduction in productivity growth could have lowered revenues by around £16 billion in 2029-30. However, the boost to receipts from higher inflation and changes to the composition of nominal GDP growth, set out in the previous paragraph, more than offset this.”
The Office for Budget Responsibility also made it clear that Ms Reeves knew about its conclusions weeks ago. It sent an initial economy forecast to the Chancellor on September 17. It then sent two more forecasts in October. And it said: “We then produced a third and final pre-measures economy forecast, in which we took on the latest data and incorporated judgements embodied in our fiscal forecast … it was sent to the Treasury and other government departments that produce tax and spending forecasts on 23 October.”
Defending Ms Reeves, the Prime Minister’s spokesman said: “Those choices are asking everyone to contribute.
“These are fair and necesary choices to lift over half a million children out of poverty, to deliver that investment in public services … the Government is determined to renew those public services that working people rely on.”
And he said the Budget included “determined action to address the cost of living”.
Robert Colvile, director of the Centre for Policy Studies think tank, said: “Reeves gave her tough choices/income tax press conference four days after the OBR told her she was in the clear.”
Helen Miller, director of the Institute for Fiscal Studies, said: “On Oct 31 Rachel Reeves knew that – before any policy action – she still had a forecast SURPLUS. She was not handed a big fiscal repair job & forecast hadn’t moved much pre-measures.”
Paul Johnson, former head of the Institute for Fiscal Studies, said: “I think it [her November 4 ‘tax rises are coming’ press conference] probably was misleading. It was clearly intended to have an impact and confirm what independent forecasters like NIESR and the IFS had been saying. It was designed to confirm a narrative that there was a fiscal black hole that needed to be filled with significant tax rises. In fact, as she knew at the time, no such hole existed.”
Political commentator Dan Hodges said: “If Rachel Reeves knowingly and publicly misrepresented the state of the national finances in the run up to the Budget, surely that represents very serious market manipulation.” He added: “One other thing. How could they possibly have thought they could get away with this. Shows the levels of utter panic inside No.10 and No.11 in the run up to the Budget.”
