Reeves accused of misleading country over ‘black hole’ in public finances
Rachel Reeves is in the firing line for “misleading the country” after the chair of the fiscal watchdog poured cold water over claims there was a black hole in public finances.
In a new letter addressed to the chair of the Treasury select committee, the OBR chair Richard Hughes said he was taking the “unusual step” to publish the evolution of the watchdog’s economic forecasts.
Hughes said this was due to the “unusual volume of speculation,” which came after a wide variety of rogue briefings from the Treasury.
The watchdog’s chair said as of 31 October, the Chancellor had maintained a fiscal buffer of £4.2bn, even despite the productivity downgrade forecast.
This comes despite Reeves taking to Downing Street on 4 November to deliver a Budget “scene setter” speech, where she warned it was “important that people understand the circumstances we are facing”.
Shadow Chancellor Sir Mel Stride has said: “We now know the truth… It was all a smokescreen. Labour knew all along that they did not need to raise taxes and break their promises. It was an active choice to do so, to fund a huge increase in welfare spending. The OBR have now made that very clear.”
Stride added: “It appears the country has been deliberately misled.
“In doing so, some people may even have faced higher mortgage rates thanks to the impact on markets from Labour’s chaotic briefings.”
In her early November speech, and subsequent media appearances, the Chancellor and fellow government ministers heavily implied there would be a manifesto-breaking hike to income tax.
The Chancellor had warned the downgrade from the fiscal watchdog would dampen the state of public finances, with some reports suggesting it would leave a black hole as wide as £20bn.
On 10 November, Reeves told Radio 5 Live: “It would, of course, be possible to stick with the manifesto commitments. But that would require things like deep cuts in capital spending.”
But the OBR’s economic forecast said the surge in tax receipts – due largely to inflation – more than covered the £16bn downgrade.
A spokesperson for Number 10 denied that Reeves had misled the public on the road to the Budget.
“I don’t accept that,” the Prime Minister’s spokesperson said.
He added the government had made “fair and necessary” choices in the Budget to boost investment.
OBR makes ‘unusual step’
Richard Hughes, chair of the OBR, said in the foreword to the forecast he would write to Hillier “to set out the facts concerning the evolution of our forecast.”
Hughes added he was making the “unusual step” after the “volume of speculation” before the budget that caused markets to move.
But Hillier said she had not received Hughes’ letter and called for it “as soon as possible in the form it was originally intended.”
The growing questions around the timeline comes after markets dramatically moved throughout November, in anticipation of a major income tax hike.
The yield on 10-year gilts – the benchmark metric for government borrowing costs – edged down to 4.39 per cent after bond traders were appeased by Reeves’ scene setter announcement.
But after news came of a U-turn, which reports suggested “better than expected forecasts” were behind despite the OBR insisting the Treasury had the same forecasts 31 October, markets were sent into panic, rising at the fastest rate since Reeves was seen emotional in the Commons.
Gilt yields have edged down in the aftermath of the Budget after more than doubled her fiscal headroom, but have still failed to cross the mark achieved before the income tax U-turn.
Just a week before Reeves took to the dispatch box for her Budget, independent economist Julian Jessop told CityAM: “Unless something very unusual has happened, the OBR would have included all the more favourable economic assumptions in the forecast round that ended on the 31st of October.”
A Treasury spokesman said: “We will not comment on the Budget process, but we have been clear that this Budget was about cutting waiting lists, cutting debt, and cutting the cost of living.”