Rachel Reeves has condemned leaks before her make-or-break budget as “unacceptable” as she revealed her income tax U-turn was agreed in partnership with Keir Starmer.
Defending her tax and spending plans before MPs on the Commons Treasury committee, the chancellor said she had been frustrated by “leaks that were clearly not authorised” before her November speech.
“I want to reiterate in the strongest terms that leaks are unacceptable,” she said. “The budget had too much speculation, there were too many leaks, and much of the leaks and speculation were inaccurate. [It was] very damaging, as well as the IT security issues.”
In the run-up to the budget the chancellor gave a set-piece speech that was widely interpreted as preparation for a manifesto-busting income tax rise to help plug a shortfall in the public finances.
However, the Financial Times reported less than a fortnight later that the plan had been dropped, triggering a sharp sell-off in bond markets amid investor concerns over the government finances.
Reeves said she was “absolutely categorical” there had been no authorised briefing, but said she and the prime minister had been preparing to announce an income tax rise before abandoning the plan because other tax measures raised sufficient revenues.
“We did look at whether we needed to increase the rates of income tax given our concerns around the forecast … In the end that was not necessary,” she said.
The chancellor said her plans had been formed “in close partnership” with Starmer, whom she met two to three times a week in the run-up to the budget. “We decided it together as a team because that is what the prime minister and I am.”
In the chaotic weeks after the budget, the chair of the Office for Budget Responsibility (OBR), Richard Hughes, resigned after taking responsibility for the inadvertent early release of its budget documents just before Reeves stood up to announce her measures in the Commons.
Reeves said a replacement for Hughes was unlikely to be found before her spring statement. The Treasury and the independent watchdog are also in the process of carrying out leak inquiries after a series of briefings and gaffes.
The chancellor said she reserved the right to return with fresh tax increases or spending cuts in the event of a fresh deterioration in the public finances – including in the spring – but downplayed the likelihood.
Reeves said this was helped by leaving almost £22bn of headroom against her fiscal rule at the autumn budget, alongside her decision to scrap an OBR verdict on whether the target was still being met in the spring. “I reserve the right to be able to take action at any point. But I believe the headroom we have, and the changes we have made, means we won’t have to take that action in the spring. But of course I reserve the right at any time to take action.”
after newsletter promotion
Standing in sharp contrast to the situation a year earlier when Reeves pledged after her first budget not to come back with more borrowing or tax rises, her comments come amid intense scrutiny over the deliverability of her fiscal programme.
However, the chancellor said she was ruling out charging capital gains tax on primary residences and scrapping the pensions triple lock in the current parliament.
Leading economists have warned that her budget plans entail large tax increases and spending restraint in the immediate run-up to the next general election – raising the possibility they could be unpicked out of political expediency.
Under scrutiny from bond market investors questioning the credibility of her revenue-raising plans, Reeves said the government planned to introduce legislation at the earliest possible opportunity to ensure her tax changes were enacted. This includes a new council tax surcharge on properties worth more than £2m and the introduction of a 3p-a-mile levy on electric vehicles.
“That is also very important to give confidence that these tax increases will indeed happen and that public services will indeed live within the means that I have set,” she said.
