Rachel Reeves has denied lying to the public over the state of the country’s finances to justify £26bn worth of tax hikes in the Budget.
The chancellor is facing calls to quit, and the Conservatives have called for an investigation by the Financial Conduct Authority amid claims she had exaggerated the scale of the shortfall to win support for her Budget.
Pressed on Sunday on whether she had lied to the public by not making it clear she had a £4bn surplus instead of a deficit, Ms Reeves said: “Of course, I didn’t”.
She also said prime minister Keir Starmer had been kept fully informed of pre-Budget developments, saying they were a “partnership”.
And she hit back at the UK’s most respected economic think tank, the Institute for Fiscal Studies (IFS), after it said on Thursday that the better-than-expected forecast meant Ms Reeves had not been given “much of a fiscal repair job” at the Budget.
On Sunday, the chancellor said that even with a £4bn surplus, she would have been left with the lowest headroom any chancellor had secured against their fiscal rules, and this also did not take into account decisions such as the U-turn on cutting winter fuel payments or welfare reform, or the abolition of the two-child benefit cap.
Ms Reeves told the BBC’s Sunday with Laura Kuenssberg show: “If I was on this programme today and I was saying a £4bn surplus is fine, there was no economic repair job to be done, I think you would rightly be saying that’s not good enough. That would have been the lowest surplus that any chancellor ever delivered against their fiscal rules.”
She also denied Labour had broken its manifesto pledge not to raise taxes, but conceded that she was asking people to pay more.
Sir Keir is to defend the Budget in a major speech on Monday, in what will be seen as an attempt to shore up his chancellor. That is despite Ms Reeves on Sunday insisting she would remain chancellor for years to come.
Confirming that Sir Keir knew about the true state of the finances, she said: “We are a partnership and we have a Budget board, the prime minister, Keir, and myself met regularly to discuss the Budget and the choices, because these are the choices of this government and I’m really proud of the choices that we made to cut waiting lists, to cut inflation and to build up the resilience in the economy.”
Ms Reeves also defended her decision to spend billions of pounds to abolish the two-child benefit cap, saying the government was “choosing children”.
She said: “The people I was thinking about were kids who I know in my constituency go to school hungry and go to bed in cold and damp homes, and from April next year those parents will have a bit more support to help their kids.”
But Conservative leader Kemi Badenoch accused the chancellor of “raising taxes to pay for welfare” and said she “should resign”.
Ms Badenoch said: “The chancellor called an emergency press conference telling everyone about how terrible the state of the finances were and now we have seen that the OBR had told her the complete opposite.
“She was raising taxes to pay for welfare… I believe she should resign.”
She said the shadow chancellor, Sir Mel Stride, had written to the FCA calling for an investigation “because it looks like what she was doing was trying to pitch-roll her Budget – tell everyone how awful it would be and then they wouldn’t be as upset when she finally announced it – and still sneak in those tax rises to pay for welfare.
“That’s not how we should be running this process. We need people to have confidence in our system,” she added.
The furious row erupted on Friday after the Office for Budget Responsibility (OBR) said it had informed the chancellor as early as September 17 that the deficit had improved, and told her in October that it had been eliminated.
Despite this, in a major speech in Downing Street on 4 November, Ms Reeves said that weaker economic productivity had had “consequences for the public finances” and suggested tax rises were still necessary to tackle a £20bn gap.
While the Office for Budget Responsibility (OBR) did deliver a productivity downgrade that wiped £16bn off expected tax receipts, much of that was cancelled out by inflation and higher wage growth, leaving a £4.2bn surplus against Ms Reeves’s borrowing rules.
