UK PM Keir Starmer and Chancellor Rachel Reeves ‘misled cabinet to justify budget tax rises’
British MPs have accused Sir Keir Starmer and Chancellor Rachel Reeves of misleading the Labour cabinet by claiming there was a hole in the public finances to justify tax rises.
Ministers have accused Sir Keir Starmer and Rachel Reeves of misleading the cabinet by claiming there was a hole in the public finances to justify tax rises.
The British Chancellor repeatedly highlighted a downgrade in productivity forecasts in a series of cabinet meetings as she made the case for raising taxes in the budget.
One meeting, on November 4, was held after Ms Reeves had signalled in a Downing Street press conference that she was preparing to break Labour’s manifesto pledge by raising the basic rate of income tax.
She told the cabinet that Britain faced challenges in the form of “tariffs, unstable borrowing costs, inflation and long-term productivity”. She said she “had to respond to the world as it is now, not as she might wish it to be”.
Ministers emerged convinced the public finances were in such a dire state that a manifesto-breaking tax increase was necessary. In fact, the Office for Budget Responsibility (OBR) had already informed the Chancellor privately that the downgrade had been more than offset by higher than expected tax revenues.
It told Ms Reeves on October 31 that she had a £4.2bn surplus, but the information was not shared with the cabinet or the public. Only she and Sir Keir were aware of the improvement in the forecasts. Plans to increase the basic rate of income tax were abandoned a week later.
One cabinet minister said: “Why did Keir and Rachel allow the country to believe for so long that we would break our manifesto by putting up income tax by 2p when they would have known that wasn’t true?
“At no point were the cabinet told about the reality of the OBR forecasts. Had we been told, we might have been in a position to advise against setting hares running on income tax and giving the public the impression we are casual about our manifesto commitments. The handling of this budget has been a disaster from start to finish.”
Another senior minister said: “The Treasury’s operation is not exactly cutting-edge. The argument about living in uncertain times and needing more headroom makes sense, but the way she presented it, by saying there’s a big hole we need to fill, is frustrating. We had this hokey-cokey about income taxes going up and then not going up.”
Another minister said the Prime Minister and Ms Reeves looked “weak and incompetent” in the wake of the budget, but described it as “par for the course”.
Opposition parties will demand that the Chancellor answer an urgent question in parliament on claims she misled the public and the markets.
Nigel Farage, Reform UK’s leader, has submitted a letter to the Prime Minister’s ethics adviser formally requesting an investigation into “potentially serious breaches of the ministerial code”.
On Sunday Ms Reeves rejected claims that she had lied about the state of the public finances.
She said the OBR figures had not taken in her decision to include £22bn ($44bn) in headroom to cushion future financial shocks. It also didn’t include the cost of the government’s about-turns on welfare and winter fuel payments.
She told the BBC: “That [the £4.2bn surplus] would have been the lowest surplus that any chancellor ever delivered against the fiscal rules. I was clear I wanted to build up that resilience, and that is why I took those decisions.”
Ms Reeves also confirmed that Sir Keir was fully aware of the OBR’s financial forecasts. She said they had met regularly to discuss the budget, adding: “We are a partnership.”
The OBR took the extraordinary step of revealing on Friday the figures it sent to the Treasury before the budget to dispel suggestions of a significant hole.
Richard Hughes, its chairman, is expected to give evidence to the Treasury select committee this week. He faces pressure to resign over the OBR’s inadvertent release of the budget 52 minutes before Ms Reeves announced it in the Commons.
Ms Reeves dropped the income tax plan on November 12 in favour of a number of smaller tax rises. The decision was leaked to the Financial Times a day later, prompting chaos in the financial markets and concern that Ms Reeves had bowed to political pressure.
The Treasury insisted the decision had been taken because the OBR forecasts had improved and the deterioration in the public finances had fallen from £30bn to £20bn. In fact, the OBR’s forecast had not changed since October 31, when it said Ms Reeves had a £4.2bn surplus.
Ministers said they would ask for greater clarity on the Chancellor’s claims this week as confusion reigns over the government’s pre-budget messaging.
One said: “I just don’t understand what has gone on, I genuinely don’t. We’re all hoping to find out more this week.”
The Times
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