Sir Keir Starmer is facing intense political pressure after Downing Street admitted he approved Rachel Reeves’s disputed claims about a supposed “black hole” in the public finances.
Critics say the Chancellor misled voters by insisting that Britain faced a £30 billion fiscal gap and warning of the need for painful tax rises in the November Budget. Number 10 has now confirmed the Prime Minister was aware of the figures behind her speech — including official forecasts showing her fiscal rules would still be met and that the Office for Budget Responsibility’s productivity downgrade had not created a deficit.
Despite this, a Downing Street spokesperson insisted on Saturday night that Ms Reeves’s comments were “entirely accurate”, and said Sir Keir was informed of “the content of the speech”.
The row has engulfed both Labour’s leadership and the Treasury after the OBR published a detailed record of its talks with officials. The documents show the Chancellor and her team had significantly overstated the fiscal shortfall as they prepared their £30bn Budget tax raid — a move critics allege was designed to head off calls from Labour backbenchers to increase taxes to fund welfare spending.
Labour figures began turning on their own leadership as the fallout grew. One party source said the Prime Minister was standing by his Chancellor because “Rachel is inextricably tied to Keir Starmer and vice versa”, adding that removing her “would bring down Sir Keir as well”.
A senior Labour figure said: “This looks pretty bad. Keir made a point of being more involved in the Budget from the beginning, and now it appears the story from the Chancellor is not what the OBR is saying. There are clearly questions for Keir and Rachel to answer.” Another MP added: “It’s hard to see how they come back from this.”
Ms Reeves is now facing an inquiry by the Financial Conduct Authority after the Conservatives accused her of “market abuse”, a civil offence.
Sir Mel Stride, the shadow chancellor, said her comments had misled the public and triggered volatility. He has written to Nikhil Rathi, the FCA chief executive, claiming there had been “market speculation” and “volatile” gilt markets as a result of Treasury briefings and ministerial remarks.
“All of this coincided with a period of interest rate decision-making,” he said. “In addition, investors, businesses and ordinary families will have taken decisions based on briefings from HM Treasury and public statements by ministers which we now know to have been misleading.“I am therefore requesting a full investigation by the FCA into possible market abuse by all those who would have had access to confidential information, including at HM Treasury and 10 Downing Street.”
The Chancellor is also expected to be pressed by MPs on Monday, with Sir Lindsay Hoyle, the Commons Speaker, likely to grant an urgent question if requested. She will additionally face claims she misled the public when she appears on the BBC’s Sunday Morning programme with Laura Kuenssberg.
The row has triggered fury across the political spectrum. The Conservatives launched a petition urging Sir Keir to sack Ms Reeves, saying “honesty matters”. One Tory source asked: “Who is Rachel Reeves trying to kid? This was one big black hole lie.”
Former chancellor Nadhim Zahawi said: “She has to resign; her position is becoming untenable by the minute. She lied about the black hole, and she has sacrificed economic growth in favour of her misguided backbenchers.”
Labour’s biggest union donor also joined in. Sharon Graham, Unite’s general secretary, told The Telegraph that the Budget’s freeze on income tax thresholds — which Reeves had pledged not to implement — amounted to a “shameful stealth tax”.
Reform UK’s deputy leader Richard Tice echoed calls for her removal, saying: “It is time to change course with a new chancellor and rebuild confidence with the British people.”
Allies of Sir Keir attempted to shift criticism towards the OBR, complaining privately that the watchdog had released details of its forecasts. One government source said: “It feels quite adversarial for them to have put out the letter on Friday, and that is not a good place for them to be.”
Another said there was “frustration across government about the lack of consistency in what they do”.
OBR officials told the Chancellor on October 31 that there was no deficit in the public finances, and that higher-than-expected tax receipts meant a £4.2bn surplus existed before policy changes.
Despite that, Ms Reeves continued to frame the public finances as being £20bn in the red and suggested an income tax rise would be required.
On November 4, she delivered a Downing Street speech insisting Britain’s productivity performance was “weaker than we previously thought”, adding: “What I want people to understand ahead of the Budget is the circumstances we face. I could … sweep those challenges under the carpet. I am being honest with people.”
On Saturday night, a No 10 source defended her position, saying: “Of course Number 10 was aware of the OBR figures which showed the need for significant revenue-raising to meet our commitments and to achieve the desired headroom. Those figures reflected the OBR’s productivity downgrade.”
They added: “No 10 was aware of the content of the speech, which we believe entirely accurately outlined the need to raise revenues. The idea that there was any misleading going on about the need to raise significant revenue as a result of the OBR figures, including the productivity downgrade they contained, is categorically untrue.”
The source also argued that the £4.2bn surplus was “not a real surplus”, as it did not take into account the extra spending triggered by reversals on winter fuel payments and disability benefits.
