No. 10 denies that Reeves misled the public in the run-up to Budget

Downing Street has denied that Rachel Reeves misled the public about the state of the public finances ahead of this week’s budget.

In the run-up to Wednesday’s statement, the chancellor repeatedly spoke of a cut in Britain’s forecast economic productivity, which would make it difficult for her to meet her spending rules.

But in a letter to MPs sent on Friday, the chair of the Office for Budget Responsibility (OBR) revealed that a forecast of higher wages – which she did not mention – would help her comply with the rules.

Conservatives have accused Reeves of giving an overly pessimistic impression of government finances as a “smokescreen” to raise taxes.

Tory leader Kemi Badenoch said the letter showed Reeves had “lied to the public” and should be sacked.

In one letter to the Commons Treasury committeeOBR chairman Richard Hughes revealed that he told the Chancellor on September 17 that the public finances were in better shape than was widely believed.

The letter also shows that the OBR told the Treasury on October 31 that it was on course to meet its headline rule of not borrowing for day-to-day spending, albeit by £4.2 billion, less than the £9.9 billion of ‘headroom’ it had left itself last year.

On November 4, Reeves made a rare pre-Budget speech in Downing Street to warn that British productivity was weaker “than previously thought” and that “it also has implications for public finances, in the form of lower tax revenues.”

Then, on November 10, she told BBC Radio 5 Live: “It would of course be possible to continue to deliver on the manifesto’s promises, but that would require things like deep cuts in capital spending.”

These comments, along with her speech, fueled speculation that she needed to raise significant amounts of money to meet her budget rules.

However, the Office for Budget Responsibility has now confirmed that while it has indeed reduced productivity, it also predicted that this would be “neutralised” by higher wages, boosting government tax revenues.

That meant she had a surplus to meet both of her budget rules.

A Treasury spokesman said: ‘We won’t comment on the OBR’s processes or speculate on how that relates to internal decision-making in the run-up to a budget, but the Chancellor has made her choices to reduce the cost of living, reduce hospital waiting lists and have double leeway to reduce the cost of our debt.’

But Reeves continued to indicate she would likely raise income tax rates.

At her Downing Street press conference, she said: “It is already clear that productivity performance… is weaker than previously thought.”

She added: “What I want people to understand ahead of that budget is the circumstances we face.”

Ultimately, Reeves backed away from raising income tax rates, although her budget was still contained £26 billion in tax increasesincluding by freezing income tax thresholds for another three years, which will eventually push more people into higher tax brackets.

In an interview with the Guardian newspaper Reeves said: “We, as everyone knows, looked at income tax and national insurance, which was the responsible thing to do because we didn’t know the extent of the downgrade and productivity.”

The chancellor told the newspaper she had made “fair and necessary” choices, adding: “I was not prepared to make cuts to public services because people voted for change at the election.”

Conservative shadow chancellor Sir Mel Stride said that while Reeves had repeatedly spoken about the productivity cut, she had “failed to mention” the offsetting effect of higher wages on the forecast.

He added: ‘It was all a smokescreen. Labor knew all along that they didn’t have to raise taxes or break their promises.

“It appears the country has been deliberately misled in an attempt to explain away Labour’s decision to spend billions more on social security.”

Asked whether Reeves misled the public and financial markets, the prime minister’s spokesman said: “I don’t accept that.”

He added: “Just like them [Reeves] As set out in the speech she gave here (Downing Street), she spoke about the challenges facing the country and set out her decisions incredibly clearly in the Budget.”

He added that the government has increased the finance ministry’s room to comply with fiscal rules, which would create “certainty and stability for businesses.”