Rachel Reeves has denied Opposition claims she “lied” about the state of public finances ahead of her Budget.
Opposition figures claimed she had misled the public about the size of the fiscal “repair job” she faced, with Conservative leader Kemi Badenoch calling for her to resign.
Reeves, who was supported by Sir Keir Starmer, insisted he “of course I didn’t” lie.
So what is the row about? Yahoo News UK explains…
Why was Reeves accused of lying?
The chancellor faces scrutiny over what she told the public and markets about the state of the economy in the run-up to her budget, which was presented on November 26.
There was speculation ahead of the Budget that it faced up to a £20bn gap in compliance with fiscal rules, partly as a result of a fall in productivity forecasts.
These rumors were fueled by Reeves himself when he used a November 4 speech to suggest that tax increases were needed because weak productivity growth would have “consequences for public finances”.
But on November 28, two days after Reeves released his budget, the Office for Budget Responsibility (OBR) said it had informed the chancellor as early as September 17 that improved taxation from wage growth and inflation meant the deficit was likely to be lower than originally expected – and told him in October it had been eliminated altogether.
Watch: ‘Of course I haven’t’ lied about state of public finances, insists Reeves
Opposition politicians claimed Reeves was “misleading” the public because the OBR had already provided him with a forecast showing the situation was not as bad as feared.
While the OBR produced a productivity cut that wiped £16bn of expected tax revenue, much of this was canceled out by inflation and higher wage growth, leaving a £4.2bn surplus over Reeves’ borrowing rules.
But the chancellor defended himself in a series of interviews on Sunday (November 30), saying: “Anyone who thinks there is no need to fix the public finances, I just don’t accept that.
“We needed to build more resilience, more space in our economy. That’s what we’ve done, along with this investment in the NHS and reducing bills for families.”
Reeves told Sky News that the £16m drop in productivity meant he had to raise taxes and insisted “I was upfront and honest about that in the speech I gave at the start of November”.
She pointed out that the £4.2bn surplus would have been the smallest headroom a chancellor has secured against fiscal rules.
That surplus also did not take into account the cost of the U-turn on cutting winter fuel payments or welfare reform, as well as removing the cap on the two-child benefit.
What was the answer?
Tory leader Badenoch said Reeves should resign, claiming he was trying to justify tax rises on his welfare measures, such as removing the cap on child benefit, to appease unhappy Labor MPs.
Badenoch told the BBC’s Sunday with Laura Kuenssberg programme: “The chancellor has called an emergency press conference [on 4 November] telling everyone how dire the state of the finances was and now I saw that the OBR had told him the complete opposite.
“She was raising taxes to pay for welfare.
“The only thing that was unfunded was the welfare payments that he made and is making on the backs of many people who work very hard and are getting poorer.
Rachel Reeves and Kemi Badenoch on BBC Sunday with Laura Kuenssberg Studio. (PA)
“And because of that, I think he should resign.”
Badenoch told GB News Reeves “knew exactly what he was doing” when he “told a lie” about the country’s finances to “send a signal to the markets” and seek favorable treatment from the bond markets to “raise money for welfare”.
She said if a CEO had behaved in the same way before presenting an annual report, he would have faced possible jail time.
Writing on social media earlier in the week, Badenoch said: “For months, Reeves lied to the public to justify record tax rises to pay for more welfare. Her budget was not about stability. It was about politics: bribing Labor MPs to save their own skins. Disgraceful.”
The Conservatives and the SNP have written to the Financial Conduct Authority, asking it to look into Reeves’ “misleading” comments.
Meanwhile, UK reform leader Nigel Farage urged the prime minister’s independent standards adviser, Sir Laurie Magnus, to look into potential breaches of the ministerial code.
The code requires ministers to “give accurate and truthful information to Parliament” and to be “as open as possible with Parliament and the public”.
In his letter, Farage accused Reeves of “a sustained and deliberate narrative advanced across multiple platforms after the OBR’s forecasts were known to the Treasury and in circumstances where the existence of fiscal space was not disclosed to Parliament or the public”.
Is Starmer backing his chancellor?
Yes. Downing Street said “the idea that there was any error about the need to raise significant incomes as a result of the OBR figures, including the productivity cut they contained, is categorically untrue”.
And Starmer will use a speech on Monday (December 1) to back Reeves’ decisions in the Budget and outline his long-term growth plans.
He will praise the budget for reducing the cost of living, ensuring economic stability through more space, lower inflation and a commitment to fiscal rules and protecting investment and public services.