London, UK: Downing Street has rejected allegations that Chancellor Rachel Reeves misled the public about the state of the UK’s public finances in the lead-up to this week’s Budget.
In the run-up to Wednesday’s Budget, Reeves repeatedly highlighted a downgrade to the UK’s predicted economic productivity, suggesting it could make it difficult to meet the government’s fiscal rules. Conservatives accused her of using this as a “smokescreen” to justify tax increases, with Tory leader Kemi Badenoch claiming the chancellor “lied to the public” and should be sacked.
OBR Letter Reveals Higher Wages Offset Productivity Downgrade
A letter sent to MPs on Friday by Office for Budget Responsibility (OBR) chairman Richard Hughes revealed that higher-than-expected wage growth would offset the productivity downgrade, allowing Reeves to meet her fiscal rules. Hughes confirmed that as of 31 October, the Treasury was on track to avoid borrowing for day-to-day spending, with a smaller headroom than previously reported.
Despite this, Reeves had warned in a pre-Budget speech on 4 November that weaker productivity would reduce tax receipts and suggested that sticking to manifesto commitments might require “deep cuts in capital spending.” These statements fueled speculation that she would raise income tax rates, though she ultimately did not.
Budget Decisions and Controversy
The Budget included £26bn in tax rises, including a freeze on income tax thresholds for three years, effectively increasing the number of taxpayers in higher bands. Reeves defended her decisions in a Guardian interview, stating they were “fair and necessary” and emphasizing her commitment not to cut public services.
Shadow Chancellor Sir Mel Stride criticized Reeves for not mentioning the wage offset, calling it a deliberate attempt to justify higher spending: “Labour knew all along that they did not need to raise taxes and break their promises.”
Downing Street insisted the chancellor had been transparent, with a spokesperson saying:
“She talked about the challenges the country was facing and set out her decisions incredibly clearly at the Budget. The increased headroom creates certainty and stability for business.”
