Chancellor Rachel Reeves has firmly denied accusations that she misled the public in the lead-up to last week's budget, following revelations about the evolving economic forecasts from the government's independent fiscal watchdog.
The Accusation and the Standoff
The controversy centres on whether Rachel Reeves overstated the damage to the UK's public finances from a significant productivity growth downgrade by the Office for Budget Responsibility (OBR). The OBR's chair, Richard Hughes, stated last week that the economic outlook was more positive than the chancellor had indicated, despite her having access to early drafts of the OBR's report. This has led to growing opposition calls for her resignation.
A Timeline of Key Events
The sequence of events, pieced together from correspondence and reports, shows a complex picture of shifting forecasts.
In June, the Guardian revealed that revised OBR forecasts could create a £20bn hole in the government's tax and spending plans. By early August, the National Institute of Economic and Social Research (NIESR) suggested the shortfall could be as high as £40bn.
On 7 August, OBR chair Richard Hughes sent a confidential note to Reeves confirming a 0.3 percentage point reduction to the central forecast for productivity growth. This would lower average annual growth forecasts and reduce tax receipts by around £16bn.
The OBR delivered its first draft forecast to the Treasury on 17 September. Crucially, while it included the productivity downgrade, it also noted that higher inflation and wages would boost tax receipts, partially offsetting the negative impact.
By 31 October, the OBR's final pre-measures forecast arrived at the Treasury. It showed the earlier shortfall had been eliminated, leaving a £4.2bn surplus against the chancellor's day-to-day spending target. The OBR has since confirmed that no further changes were made to the underlying economic forecast after this date.
The Political Narrative and Tax Decisions
Despite the improving forecast, the public narrative from the chancellor and Prime Minister Keir Starmer remained focused on tough choices. In late September and early October, Reeves hinted that tax rises might be necessary, citing the "challenging" economic situation.
During this period, officials reportedly discussed a plan to raise income tax by 2p, offset by a cut in National Insurance. Speculation mounted, with a Times report on 6 November suggesting Reeves was trying to fill a £30bn hole.
However, on 13 November, just days before the budget, Reeves and Starmer abandoned the income tax rise plan. Whitehall sources suggested the decision was partly political, driven by backbench unrest and the fact forecasts showed the fiscal hole was closer to £20bn.
On Budget Day, 26 November, Reeves announced £26bn of tax rises, primarily through freezing tax thresholds, to fund welfare spending and double her fiscal headroom to £20bn. She justified the measures by citing the need to repair the public finances after the productivity downgrade.
Fallout and Resignation
The aftermath saw intense scrutiny. The OBR's Hughes wrote to the Treasury committee on 28 November to clarify the forecast evolution, implicitly showing the fiscal hole had largely been eliminated by late October.
On 30 November, Reeves defended her actions on the BBC, stating that a £4bn surplus was insufficient and a broader repair job was needed. Conservative leader Kemi Badenoch called for her resignation, accusing her of deception.
The episode concluded with the resignation of OBR chair Richard Hughes on 1 December, following an inquiry that blamed the watchdog's leadership for the early leak of budget details. The inquiry found weaknesses in the OBR's long-standing procedures.
