Reeves Cites OBR Updates as Key Factor Behind Budget Tax Increases

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Rachel Reeves found herself under scrutiny today as she attributed the significant tax hikes in her latest Budget to downgrades from the Office for Budget Responsibility (OBR), despite backlash over allegations of misleading statements regarding the Treasury watchdog’s evaluations.

The Chancellor faced a tough television interview amid increasing pressure to resign following alarming warnings reminiscent of ‘Project Fear’ concerning the state of public finances.

In the lead-up to revealing the fiscal plan, Ms. Reeves had repeatedly highlighted the independent body’s findings of a substantial financial deficit.

However, reports have surfaced indicating that the OBR informed her as early as September that decreases in productivity were being counterbalanced by improved tax revenues.

By late October, budget forecasts even suggested a slight surplus, with the need for extensive tax hikes stemming from Labour’s own political decisions.

In a conversation with Sky News today, Ms. Reeves asserted that this year’s Budget was not as extensive as the previous year’s.

She said the ‘big downgrade in productivity’ was the main factor in her decisions, saying it had a ‘big impact’ and ‘that’s why I had to ask people to contribute more’.

Ms Reeves admitted she did know that she was running a surplus when she gave an extraordinary breakfast-time speech talking up the grim state of the public finances.

But she denied ‘lying’ to the public about the situation, arguing that she needed a bigger buffer to avoid markets panicking about government debt.

After initially dodging the question on whether she had ‘lied’, Ms Reeves said: ‘Of course I didn’t.’

Downing Street has mounted a frantic operation to shore up the Chancellor, insisting that Sir Keir signed off on an extraordinary pre-Budget speech in which Ms Reeves talked up the problems she faced.

Asked if the premier knew what she was up to in the run-up to the announcements, Ms Reeves said: ‘Yes of course. We are a partnership.’

Rachel Reeves wriggled as she faced TV grilling amid mounting calls for her to quit over dire ‘Project Fear’ style warnings on the state of the public finances

Rachel Reeves is desperately defending her ‘lies’ about her Budget choices today as Keir Starmer tried to shore her up

A letter from the OBR to the Treasury Select Committee has been published spelling out the timetable of exactly what forecasts were provided to the Chancellor as she drew up her Budget package

Timeline of Treasury ‘lies’ on Budget

September 17: OBR gives initial forecasts to the Treasury showing that higher tax revenues have largely wiped out £21billion of productivity downgrades.

October 31: OBR’s last pre-measures forecasts are handed over. The Chancellor is told she is meeting her fiscal rules with £4billion of headroom on the current spending balance element.

November 4: Rachel Reeves gives a highly unusual pre-Budget ‘scene setter’ speech in Downing Street. She refers to productivity downgrades – but not the tax upgrades – and says they will have ‘consequences’.

This is widely taken as a signal income tax will be hiked, a conclusion the Treasury does not discourage.

November 10: The Chancellor doubles down on her dire warnings in a BBC interview, suggesting the only way to avoid breaking the manifesto would be to cut capital spending. She has already been adamant this is something she will not do.

November 13-14: The Financial Times sparks pandemonium by reporting that the income tax rise plan has been ditched.

The gilts market rises sharply as traders price in risk that Ms Reeves is not serious about balancing the books.

In order to contain the situation government sources brief journalists the following morning that the idea has been dropped because the OBR has upgraded tax revenue forecasts. However, they still stress that Ms Reeves has a big hole to fill.

November 26: After another week of confusion Ms Reeves unveils a Budget that imposes £30billion a year of extra tax on Britons by 2030-31. A large portion of the extra money goes toward extra benefits spending, including £3billion on axing the two-child cap on benefits – something mutinous Labour MPs have been clamouring for.

The OBR forecasts released alongside the Budget show that Ms Reeves’ headroom had only been reduced by £6billion since March.

The Chancellor uses some of the projected extra tax revenue to rebuild her headroom to more than £20billion.

November 28: The Treasury Select Committee publishes a letter from OBR chief Richard Hughes laying out in detail what forecasts they gave to the government.

Ms Reeves said: ‘In the context of a downgrade in our productivity, which cost £16 billion, I needed to increase taxes, and I was honest and frank about that in the speech that I gave at beginning of November.’

Sir Keir is due to hold a press conference tomorrow in which he will line up behind Ms Reeves, effectively intertwining their fates.

No10 sources have also risked fuelling the backlash by dismissing criticism as a ‘silly row brought about by people who can’t do maths’. The Tories have accused Ms Reeves of ‘lying’ to soften the country up for tax increases.

A poll for the Mail on Sunday has found 68 per cent of voters believe Ms Reeves should resign, with just 32 per saying she should stay.

Anger reached fever pitch on Friday after a letter from the OBR to the Treasury Select Committee was published.

In a highly unusual step, it spelled out the timetable of exactly what forecasts were provided to the Chancellor as she drew up her Budget package.

Asked whether Sir Keir was aware that the OBR had made clear that the true economic picture was rosier than had been painted, a No10 source said: ‘The Prime Minister and Chancellor worked together on the Budget, which made fair and necessary choices’.

Sources told the Telegraph that Ms Reeves’ comments had been ‘entirely accurate’ and Sir Keir was aware of ‘the content of the speech’.

Shadow chancellor Mel Stride has asked the Financial Conduct Authority for a full investigation ‘into possible market abuse by all those who would have had access to confidential information including at HM Treasury and 10 Downing Street’.

He suggested that markets could have been manipulated by knowingly false statements.

But Ms Reeves has flatly denied misleading the public, telling The Guardian that the tax raid was still ‘fair and necessary’.

As the Budget loomed, the Chancellor flagged that the OBR was downgrading productivity, as well as blaming everything from Brexit to Tory austerity and Donald Trump for a grim outlook.

Ms Reeves made a highly unusual ‘scene setter’ speech in Downing Street on November 4 hinting that she would have to breach Labour’s manifesto promises not to increase income tax.

And six days later she gave an interview to the BBC in which she insisted that the only way to balance the books without an income tax hike was to cut ‘capital spending’ – something she made clear she was not willing to do.

However, the letter from the OBR to the Treasury committee revealed that it told Ms Reeves in September that revisions to tax revenues had almost completely offset a £21billion productivity downgrade.

By October 31 the watchdog said it had informed Ms Reeves that she was in fact meeting both her fiscal rules without the need for any action – giving her more than £4billion in headroom.

In the event the Chancellor announced an eye-watering £30billion package of tax rises on Wednesday, a large chunk of which went on benefits rises that had been demanded by mutinous Labour MPs.

She had already U-turned on the hints of income tax rises – if they were ever seriously considered – but only after the fact they were not happening was leaked to the Financial Times.

No10 and Treasury insiders have been pointing out that the OBR’s forecast of a surplus did not account for the U-turn on scrapping the winter fuel payment, or bowing to Labour MPs on abandoning welfare curbs and abolishing the two-child benefit cap.

Together those decisions cost the government around £10billion a year. Ms Reeves has also insisted she needed to rebuild the government’s headroom, an effective acknowledgment that the £10billion of space she left at her Budget last year was too small.