Prime Minister Keir Starmer has rejected allegations that Chancellor Rachel Reeves misled the Cabinet or the public about the state of public finances ahead of last week’s Budget release, after a new row broke out between the Treasury and the Office for Budget Responsibility (OBR).
In a speech at a nursery school in London, Starmer defended Reeves’ tax hikes and her decision to scrap the two-child benefit cap, despite weeks of speculation about possible income tax rises. He insisted that measures to raise revenues were unavoidable and rejected allegations that the government had exaggerated the scale of its fiscal challenges.
“There was no misdirection,” he said. “It was inevitable that we always had to increase sales. It was clear to me that we needed more leeway.”
His comments follow criticism of the Treasury’s approach before passing the budget after Reeves repeatedly suggested that income tax rates could be raised – a position he later abandoned. The Treasury reportedly estimated there was a £30bn shortfall in fiscal space, a figure now disputed by the OBR.
In a letter to the Treasury Select Committee, OBR chairman Richard Hughes confirmed that there had been no significant deterioration in public finances after October 20, apart from the government’s decision to abandon planned welfare cuts. This assessment contradicts claims circulating in early November that the UK is facing a much larger budget hole.
More questions have emerged about the timing of Reeves’ statements. On November 5, she suggested that Labor was prepared to break its election promise on income tax. By November 13, media briefings said tax increases had been put on hold due to improved forecasts. The OBR has since confirmed that no such improvement occurred over this period.
BBC political editor Chris Mason said on Monday that the Treasury had “misled the public” by allowing speculation to be based on inaccurate or incomplete information.
Starmer dismissed the accusation, instead pointing to the OBR’s productivity review, which downgraded trend growth forecasts and forced the government to raise additional revenue. He said he was “confused” that the OBR did not revise these figures before the general election.
“I’m not angry about the productivity rating,” he said. “It’s a good thing to do from time to time.”
He added that the OBR remained “vital and integral” to maintaining financial stability.
Hughes is due to appear before MPs on Tuesday in what is expected to be a tense hearing between the OBR and the Treasury.
Starmer’s comments came during a speech in which he set out the next phase of the government’s economic growth agenda. He identified three priorities – deregulation, social reform and strengthening trade relations – as central to raising living standards.
He also appeared to confirm that the government will support all recommendations from economist John Fingleton’s review of the nuclear sector. The review found that a planning system that favored “process over results” had made the UK the most expensive place in the world to build nuclear power stations.
“I accept Fingleton’s recommendations,” Starmer said, while Business Secretary Peter Kyle was told to extend the reforms to other sectors.
“Today represents the largest and most radical change to nuclear regulation in our country’s history,” said Lawrence Newport of Looking for Growth. “These reforms will transform our energy sector, allowing us to generate more energy here and reduce bills for homes and businesses.”
