British Treasury chief Rachel Reeves defended her budget on Sunday, denying she misled the public about official forecasts ahead of the widely anticipated budget and finance statement, saying she had been honest about the need to build a larger fiscal buffer.
In a speech on Nov. 4, Reeves appeared to lay the groundwork to break the Labour Party’s promise to voters before the 2024 election and raise income tax rates, citing a “weaker than previously thought” productivity performance.
In a letter published on Friday, the head of Britain’s budget watchdog said it had also provided the government with forecasts showing that its productivity downgrade was offset by increases in real wages and inflation, which Reeves did not mention.
The letter added to questions about the government’s communications ahead of Wednesday’s budget. November saw big swings in the British government bond market as investors grappled with shifts in the government’s tone on the prospect of tax increases.
Its publication prompted the opposition Conservative Party to demand that Reeves resign for misleading the public about the economic situation ahead of her Nov. 26 budget.
Reeves told the BBC that she intended to stay as finance minister for a long time.
“I have been underestimated all the way through my life,” Reeves said. “I’m proud of my budget this week.”
The confidential forecasts provided to Reeves by the Office for Budget Responsibility (OBR) watchdog before her Nov. 4 speech showed she would meet her fiscal rules by a margin of 4.2 billion pounds ($5.57 billion), not including any budget measures or the reversal of welfare cuts earlier in the year.
On Sunday, Reeves told Sky News that boosting that buffer, which would have been very thin by historical standards, was her main concern, which required her to deliver a tough message to the public.
“The just over 4 billion pounds surplus was not enough,” Reeves said. “The headroom would not have been enough, and it would not give the Bank of England space to continue cutting interest rates.”
When the budget was announced on Wednesday, Reeves had more than doubled her headroom against the fiscal rules to 21.7 billion pounds from 9.9 billion pounds in her previous fiscal plan.
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