Jennifer McKiernanPolitical reporter
Chancellor Rachel Reeves has rejected claims she misled the public about the nation’s finances in the run-up to her Budget.
Reeves was challenged on the BBC to explain why she had repeatedly warned about a downgrade to the UK’s economic productivity forecasts – including in a speech on 4 November – ahead of Wednesday’s Budget.
It has since emerged the Office for Budget Responsibility (OBR) told her in mid-September the public finances were in better shape than widely thought, with Reeves omitting to mention a forecast of higher wages.
Reeves said the OBR figures were clear there had been “less fiscal space than there was” and that she had been “upfront” about her decision-making. But Conservative leader Kemi Badenoch repeated her call for the chancellor to quit.
When pressed on the issue on BBC One’s Sunday with Laura Kuenssberg, Reeves said she did not “accept” she had been misleading.
Badenoch, also appearing on the programme, said she was not satisfied with the chancellor’s denial, however.
The Conservatives have accused the chancellor of giving an overly pessimistic impression of the public finances as a “smokescreen” to raise taxes, with Badenoch claiming Reeves had “lied to the public”.
But Downing Street has denied the accusations and Prime Minister Sir Keir Starmer is expected to back Reeves’ budget decisions in a speech on Monday, saying the chancellor’s decisions would help tackle cost of living pressures and lower inflation.
Reeves was asked by Kuenssberg if she could be trusted, responding that she could.
Kuenssberg then outlined what the chancellor said in a speech on 4 November, when Reeves indicated there was less cash than previously forecast due to a productivity downgrade, and she was likely going to need to raise taxes as a result.
Reeves explained that, despite what critics were saying, “I didn’t have an extra £4bn to play with” but instead that the OBR figures had been downgraded from £9.9bn headroom in spring to £4.2bn in the autumn.
Headroom is the term for money left over after the government meets its expected budget costs under its own fiscal rules, providing a financial buffer for unexpected costs.
“I clearly could not deliver a budget with just £4.2bn of headroom,” she said, as that would have been “the lowest surplus any chancellor ever delivered”, and she would “rightly” have been facing criticism for the headroom being too small.
She said: “I was clear that I wanted to build up that resilience and that is why I took those decisions to get that headroom up to £21.7bn.”
Pushed on whether she had exaggerated the situation in order to pave the way for a £16bn increase in welfare, Reeves said she also had to factor in policy choices made in the previous six months on welfare and the Winter Fuel Allowance.
She said: “I did say when those policies changed just before the summer that we would have to find that money in the Budget, so I was very upfront about that.
“Yes, I did make the decision in the Budget to scrap the two-child [benefit] limit – that was funded by increases on online gambling taxes and also by cracking down on tax avoidance and tax evasion, fully costed and fully funded, and lifting half a million children out of poverty.”
Asked if she had broken the spirit, if not the letter, of her manifesto commitment on taxation by freezing income tax thresholds, Reeves said: “I recognise I did not say that in the manifesto, but since then we’ve had both a significant downgrade in the productivity forecast but also huge global turbulence.”
She added: “I have to respond to all those things because, if I were to lose control of the public finances, we would be punished.
“Punished by financial markets that hold £2.6tn of public debt, and punished with higher interest rates, which wouldn’t affect just the country but would also affect every single business that borrows, and every single family that has a mortgage.”
Badenoch said she was “absolutely not” satisfied with Reeves’ explanation and she should instead have cut welfare spending.
She 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 was telling her the complete opposite.
“She was raising taxes to pay for welfare – the only thing that was unfunded was the welfare payments that she has made, and she’s doing it on the backs of a lot of people out there who are working very hard and getting poorer – and because of that I believe she should resign.”
She accused the chancellor of 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”, which could constitute “market manipulation”.
Tory shadow chancellor Mel Stride has written to the Financial Conduct Authority asking it to investigate “possible market abuse” by people working in the Treasury and Downing Street in the run-up to the Budget. The SNP has also written to the body.
The Conservatives have also written to the prime minister calling for Reeves to come before MPs on Monday to explain her conduct surrounding the Budget and period leading to it.
Reform UK Leader Nigel Farage has reported Reeves to the the independent adviser on ministerial ethics to investigate whether she broke the ministerial code over her pre-Budget interventions.
Meanwhile, Liberal Democrat deputy leader Daisy Cooper said there were “very serious questions to answer” and is understood to have submitted an urgent question in Parliament on the issue.
