Rachel Reeves has been accused of “lying” to the public about the state of the country’s finances to justify £26 billion in tax hikes announced in her Autumn Budget.
In the lead-up to the statement, the Chancellor repeatedly warned she would need to make “hard choices” that were “necessary to deliver strong foundations for the economy”, citing the need to protect the NHS, reduce national debt, and tackle the cost of living.
In her November 4 precursor speech to the Autumn budget, she laid the groundwork for tax rises, blaming Donald Trump’s tariffs and the Budget watchdog’s expected downgrade of productivity for the changes, arguing that if Britain is to “build the future of Britain together”, “we will all have to contribute to that effort.”
This signalled that she intended to raise headline rates of income tax to meet her tax and spending plans.
But it has since emerged that Ms Reeves made those comments just days after receiving a letter from the Office for Budget Responsibility (OBR) stating that the economic outlook had improved and that, rather than a deficit, she in fact had a £4.2 billion surplus.
Conservative leader Kemi Badenoch said the letter showed Ms Reeves had "lied to the public" and was “bribing Labour MPs to save her own skin”, as she called for her to be sacked.
However, Downing Street has said the Chancellor did not mislead the public or markets when she warned of difficult decisions needed to fill a black hole in the public finances.
When asked whether Ms Reeves' warnings of coming difficult decisions despite the OBR's improved forecasting meant she had misled the public and the markets in the run-up to the Budget, an official spokesman for Downing Street said: "I don't accept that".
He added: "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."
Dame Meg Hillier, Labour chairwoman of the committee, asked OBR chief Richard Hughes to set out a timeline for its pre-Budget forecast process, which informed the Chancellor's decision-making.
The OBR's first fiscal forecast ahead of the Budget, received by Treasury officials on September 17, suggested that black hole was £2.5 billion.
The watchdog's final forecast on October 31 then suggested that it had been eliminated altogether and that there was now a £4.2 billion net positive above the Chancellor's day-to-day spending plans.
The prospect of raising income tax rates — trailed for several weeks — was dropped on November 13, with the Treasury attributing the change to improved forecasting. However, the OBR has indicated that it provided ministers with no new forecasts in November.
"No changes were made to our pre-measures forecast after October 31," the watchdog's letter to the Treasury Select Committee said.
Ben Zaranko, an economist for the Institute for Fiscal Studies think tank, questioned the rationale behind the briefings in the run-up to the Budget.
He wrote on social media: "At no point in the process did the OBR have the Government missing its fiscal rules by a large margin. Leaves me baffled by the months of speculation and briefing.
"Was the plan to lead everyone to expect a big income tax rise, then surprise them on the day by not doing it..?"
At the Budget on Wednesday, Ms Reeves hiked taxes by £26 billion, including by freezing thresholds on income tax.
The tax hikes come in response to downgraded economic forecasts but also increased welfare spending because of the abolition of the two-child benefit cap and the Labour revolt over attempts to curb the benefits bill.
Ms Reeves also used some of the tax take to build herself a bigger buffer against her borrowing rules.
Commenting on social media, Tory leader Mrs Badenoch said: "Yet more evidence, as if we needed it, that the Chancellor must be sacked. For months Reeves has lied to the public to justify record tax hikes to pay for more welfare.
"Her Budget wasn't about stability. It was about politics: bribing Labour MPs to save her own skin. Shameful."
Shadow chancellor Sir Mel Stride called on Ms Reeves to resign.
"Rachel Reeves' broken tax promises and the briefing debacle in the run-up to the Budget have had real consequences for our economy and for people across the country," he said.
"The Chancellor must now do the right thing and step down."
