The Office for Budget Responsibility (OBR) has cast doubt on claims that Chancellor Rachel Reeves dropped plans to raise income tax in this week's budget due to improved forecasts, revealing she knew about these revisions well before the decision was made.
In an unusual move, OBR chair Richard Hughes wrote to the Treasury select committee to explain how its forecast evolved, including a chart showing that by 31 October, Reeves was already set to meet her first fiscal rule with £4.2bn to spare. No significant alterations were made to the forecast after that date, more than 10 days before the income tax plan was reportedly dropped.
Reeves had delivered a pre-budget speech on 4 November, widely seen as preparing the ground for breaching Labour's manifesto pledge on income tax. However, by 13 November, she and Prime Minister Keir Starmer decided to abandon the idea, with Treasury sources briefing that improved OBR forecasts made the tax rise unnecessary.
The OBR's letter confirms that forecasts did improve, but that even by 3 October, the chancellor faced only a small breach of her first rule. The shadow chancellor, Mel Stride, accused the government of deliberately misleading the public, saying the tax rise was an active choice, not a necessity.
Treasury sources rejected the OBR's account, arguing that final decisions could only be made after the OBR had incorporated planned budget measures and their impact on growth into its forecasts. Relations between the Treasury and the OBR have been strained, with Reeves previously criticising the timing of the watchdog's productivity forecast revisions.
