Reeves fighting claims she ‘lied’ about deficit as Starmer set to back the budget

Rachel Reeves is fighting claims that she “lied” to the public about the state of the finances in the run-up to last week’s budget – in which she raised £26bn in taxes.

It follows a letter published by the Office for Budget Responsibility (OBR), the official watchdog which draws up forecasts for the Treasury, published on Friday.

In it, OBR chair Richard Hughes (who is already under fire for the leak of the budget measures) said he’d taken the unusual step of revealing the forecasts it had submitted to Rachel Reeves in the 10 weeks before the budget, and which is normally shrouded in secrecy.

The letter reveals this timeline, which has plunged the Chancellor into trouble:

17 September – first forecast

At this point, it was already known that the UK’s growth forecast would be downgraded. The chancellor was told that the “increases in real wages and inflation” would offset the impact of the downgrade. The deficit forecast by the end of the parliament was £2.5bn.

20 October – second forecast

By this point, that deficit had turned into a small surplus of £2.1bn – i.e. the productivity downgrade has been wiped out and “both of the government’s fiscal targets were on course to be met”.

31 October – third forecast

The final one before the Treasury put forward its measures. The finances were now net positive with a £4.2bn surplus.

But the accusation is that Rachel Reeves was presenting an entirely different picture – that she had a significant black hole which needed to be filled.

13 October

Ms Reeves tells Sky’s deputy political editor Sam Coates the productivity downgrade has been challenging but added: “I won’t duck those challenges. Of course we’re looking at tax and spending.”

27 October

With the Treasury now aware the deficit had been wiped out, the Financial Times was briefed about a “£20bn hit to public finances.”

4 November

Ms Reeves gave a dawn news conference in Downing Street, setting the stage for tax rises. She says she wants people “to understand the circumstances we are facing… productivity performance is weaker than previously thought,” adding that “we will all have to contribute”.

10 November

Ms Reeves tells BBC 5Live that sticking to Labour’s promises not to raise taxes would require “things like deep cuts in capital spending”. The stage seemed set for the nuclear option – the first income tax rise in decades.

13 November

After headlines about a plot to oust Prime Minister Sir Keir Starmer, the Financial Times reported that the chancellor had dropped plans to raise income tax because of improved forecasts [which we now know hadn’t changed since 31 October], putting the black hole closer to £20bn than £30bn.

The prime minister’s spokesperson has insisted Ms Reeves did not mislead voters and set out her choices, and the reasons for them, at the budget.

But the issue has had enormous cut-through, with newspapers giving it top billing.

The Sun’s Saturday front page headline – “Chancer of the Exchequer – fury at Reeves ‘lies’ over £30bn black hole” – will not have been pleasant reading for ministers.

She now has questions to answer about the chaotic run-up to the budget – of briefing and counter-briefing, which critics say now makes little sense.

Tory leader Kemi Badenoch said on Saturday: “We have learned that the chancellor misrepresented the OBR’s forecasts. She sold her ‘Benefits Street’ budget on a lie. Honesty matters… she has to go.”

Economist Paul Johnson, former director of the respected Institute for Fiscal Studies (IFS), told The Times the chancellor’s 4 November news briefing “probably was misleading. It was clearly intended to have an impact and confirm what independent forecasters like [the National Institute of Economic and Social Research] and the IFS had been saying.

“It was designed to confirm a narrative that there was a fiscal hole that needed to be filled with significant tax rises. In fact, as she knew at the time, no such hole existed.”

Ms Reeves is doing a round of morning interviews on Sunday in which she’ll be grilled over which of her budget measures will generate economic growth (which the government claimed was its number one priority), why they have been unable to tackle rising welfare spending and now about why markets and voters were left confused by dire warnings.

She may claim that she never personally said there was a specific £30bn black hole or that the extra headroom generated by the tax rises will ensure she does not have to come back for more next year.

In an interview with The Saturday’s Guardian, Ms Reeves said she had “chosen to protect public spending” on schools and hospitals in the budget.

She confirmed an income tax rise had been looked at, and insisted that OBR forecasts “move around” after the Treasury has submitted its planned measures. There are plenty more questions to come.

Meanwhile, Sir Keir will use a speech on Monday to support Ms Reeves’ budget decisions and set out his long-term growth plans.

He will praise the budget for bearing down on the cost of living, ensuring economic stability through greater headroom, lower inflation and a commitment to fiscal rules, and protecting investment and public services.

Sir Keir will say “economic growth is beating the forecasts”, but that the government must go “further and faster” to encourage it.

Rachel Reeves will be speaking to Trevor Phillips on his Sunday show from 8.30am this morning. He will also be joined by Conservative leader Kemi Badenoch and Liberal Democrat deputy leader Daisy Cooper.