Rachel Reeves had signalled that she could be forced to hike income tax in the Budget to plug an economic black hole -estimated by experts to be around £20billion
Downing Street has denied that Chancellor Rachel Reeves misled the public or markets with warnings over the size of the black hole in the public finances.
Rachel Reeves signalled earlier this month that she could be forced to hike income tax in the Budget, in a bid to plug the shortfall, which was estimated by experts to be around £20billion. But she later abandoned the move, which Treasury insiders suggested was due to rosier forecasts from the Office for Budget Responsibility (OBR).
However the watchdog said in a letter published today that it had informed her in September that the gap would be much smaller. And on October 31, the OBR told the Chancellor that the black hole had been filled and there was now a small surplus.
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“No changes were made to our pre-measures forecast after October 31,” the watchdog wrote to MPs on the Treasury Select Committee. But Ms Reeves gave an early morning speech on November 4 which was widely seen as an attempt to prepare the public for a hike to income tax.
The following week, the news was leaked to the Financial Times that she had dropped the move.
Asked if she had misled the public, the Prime Minister’s official spokesman said: “I don’t accept that.
“As she set out in the speech that she gave here (Downing Street), she talked about the challenges the country was facing and she set out her decisions incredibly clearly at the Budget.”
It comes amid increasingly fraught relations between the OBR and the Treasury. The watchdog sparked chaos on Wednesday when it accidentally published key measures from the Budget more than half an hour before Ms Reeves delivered the speech.
A Treasury spokesperson said: “We are not going to get into the OBR’s processes or speculate on how that relates to the internal decision‑making in the build‑up to a Budget but the Chancellor made her choices to cut the cost of living, cut hospital waiting lists and double headroom to cut the cost of our debt.
“We take Budget security extremely seriously and believe it’s important to preserve a private space for Treasury–OBR policy and forecast discussions, so we welcome the OBR’s confirmation that this will not become usual practice.”