The Conservatives have accused Chancellor Rachel Reeves of undermining the budget process and dragging the Office for Budget Responsibility (OBR) into a political controversy after Labor said improved economic forecasts had led it to abandon plans for an income tax rise.
Shadow chancellor Sir Mel Stride has written to Richard Hughes, chairman of the OBR, demanding clarity on when the chancellor received the watchdog’s forecasts and whether they played a role in last week’s surprise U-turn. Reeves was expected to announce a 2p increase in the property tax rate but changed course amid intense speculation about Sir Keir Starmer’s leadership difficulties.
Reeves dropped the plans two weeks after the OBR presented its final interim budget forecast on October 31. The timing has fueled suspicions among Conservatives that the Chancellor’s decision was politically motivated and not dictated by the numbers. In his letter, Stride said the government’s statements “simply don’t add up”, adding that the chancellor had “sullied the budget process” by leaking details to the press and “dragging the independent OBR into the crossfire”.
Government sources claimed Reeves was acting on the basis of an updated Treasury analysis of the OBR’s long-term growth forecasts on November 10, which reportedly showed a £10 billion improvement in public finances. However, the OBR’s published timetable says its final economic forecast – which was prepared before any policy decisions – was presented on October 31 and should provide the “stable basis” for the Chancellor’s decisions.
Stride has asked Hughes to confirm whether the Chancellor received the forecasts on that day and whether any changes have been made to the forecasts since then, other than those arising from actions submitted for assessment by the Treasury. He also questioned whether Reeves had breached confidentiality by publicly confirming that the OBR had downgraded the UK’s long-term productivity outlook.
Former Chancellor of the Exchequer Lord Burns said it was a “big mistake” for the Chancellor to chase an income tax rise and then abandon it, particularly given the reaction in financial markets. British government bond yields jumped after reports of the turnaround, forcing ministers to reassure investors that the decision was based on the OBR’s forecasts and not political unrest.
The Chancellor’s retreat from raising income tax now means she will have to raise up to £25 billion through a patchwork of smaller levies to meet her budget rules. Freezing income tax thresholds and higher tariffs on property, banks, gambling companies and electric vehicles are expected to be part of next week’s Budget.
Treasury insiders said the late change in policy left officials struggling to finalize the numbers and several measures were still undecided. A source said Reeves had previously ruled out higher taxes on banks “when the sun shone” but was now facing pressure from Labor backbenchers to reconsider bank profits.
The political unrest comes as new data from the British Retail Consortium suggests a sharp fall in consumer confidence heading into the crucial run-up to Christmas after what it said was a “turbulent” month of budget speculation.
The Treasury said Reeves would provide full details in the budget. The OBR declined to comment.
