Four days after a Budget is usually the time when it starts to unravel. Some within Labour see it as a victory of sorts for Rachel Reeves that, so far, the post-Budget debate has focused mostly on the run-up to her statement rather than the measures it contained. Certain policies – such as business rates changes for small businesses – have the potential to blow up into political rows. But the collapse of the Chancellor’s authority this summer has meant the Budget did not contain any serious reform that could stir up major trouble.
Reeves made it through her media round but the impression was, at times, shifty and unconvincing
Fearing confrontation with the markets and backbenchers, the Chancellor instead chose to generate much of her £26 billion in tax rises from the ‘stealth tax’ of freezing income tax thresholds, thereby dragging millions into higher brackets – a decision fitting with the trend of the last government. In the absence of a meaty policy row, the Tory opposition has thus focused its guns on the story Reeves spun in the weeks before the Budget to roll the pitch for her planned tax rises.
Two dates were key ahead of Wednesday’s Budget. The first was the press conference Reeves gave in Downing Street on 4 November when she suggested she would have to hike income tax to plug a fiscal black hole. This morning, however, she admitted that she did in fact know there was a Budget surplus of £4 billion, although she claimed she would have been told that was ‘not enough’ fiscal headroom. Asked directly by Trevor Phillips on Sky if she had lied, she replied: ‘No, of course I didn’t.’ She added: ‘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.’
The second important date was 14 November. That was the morning after the Financial Times broke the news that Reeves was not planning to raise income tax in the Budget. Bloomberg subsequently reported that the reason for this decision was that the confidential Office for Budget Responsibility (OBR) forecast showed that tax receipts would be higher than expected – meaning there was no need to break Labour’s manifesto pledge. However, on Thursday, the OBR’s head of economic analysis claimed the Chancellor had been told about all this on 31 October – raising questions over why both the speech and the leak occurred at all.
This selective briefing of such sensitive data has sparked allegations Labour manipulated the markets – a civil offence – and breached regulatory law. The Conservatives have now written to the Financial Conduct Authority, demanding an investigation.
Misleading the public is one thing; misleading the markets is quite another. Reeves made it through her media round today but the impression was, at times, shifty and unconvincing. She is already tarred with the lowest public approval ratings of any Chancellor on record. The row over her trustworthiness is likely only to make that worse.
Attention now turns to Tuesday when Richard Hughes, the chairman of the OBR, will give evidence before the Treasury select committee in parliament. He will almost certainly be asked about what assurances the watchdog gave Reeves ahead of 4 November and the circumstances of the leak ten days later.
The Chancellor gave Hughes a cautious thumbs-up this morning, talking of the ‘huge respect’ she has for him – despite the OBR’s catastrophic leak of the Budget measures less than an hour before she delivered her statement on Wednesday. She will be hoping that he is similarly helpful when he speaks to MPs in two days’ time.
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