Downing Street denies Rachel Reeves 'misled the public' over state of UK finances before Budget

The Chancellor had repeatedly talked down the state of the nation's finances in the build up to her fiscal statement on Wednesday.

She placed the blame on Brexit, Tory austerity and Donald Trump for a downgrade to the UK's predicted economic productivity, which would therefore make it harder to meet her own spending rules.

Read more: Starmer faces backbench anger after workers' rights U-turn dubbed 'complete betrayal'

Read more: Rachel Reeves' uncle brands niece's Budget as 'the worst I've ever seen'

But Ms Reeves failed to mention the Office for Budget Responsibility's forecast of higher wages, which would offset the downgrade and help her to meet the rules.

In a shocking letter to MPs on Friday, OBR chairman Richard Hughes said Ms Reeves had known the government's books were much healthier then first thought since September 17.

In fact, the Chancellor was meeting both her fiscal rules already, with a £4 billion headroom to spare.

Despite this, Reeves gave a rare pre-Budget speech in Downing Street to gloomily warn the UK's productivity was weaker "than previously thought" and that "has consequences for the public finances too, in lower tax receipts."

This speech fuelled speculation she would launch another tax hike assault to meet her self-imposed regulations.

In her Downing Street press conference, she said: "It is already clear that the productivity performance…is weaker than previously thought.

"What I want people to understand ahead of that Budget, is the circumstances we face."

In Wednesday's budget, Reeves delivered a fiscal package containing £26 billion in tax rises, including freezing income tax thresholds for a further three years, dragging more people into higher tax bands over time.

Conservative leader Kemi Badenoch said the letter showed Ms Reeves had “lied to the public” and should be sacked.

Downing Street was asked on Friday whether Ms Reeves’ warnings of upcoming difficult decisions, despite the OBR’s improved forecasting, meant she had misled the public and the markets in the run-up to the Budget.

"I don’t accept that,” the Prime Minister’s official spokesman said.

He added: "As she set out in the speech that she gave here (Downing Street), she talked about the challenges the country was facing and she set out her decisions incredibly clearly at the Budget."

The OBR’s first fiscal forecast ahead of the Budget, received by Treasury officials on September 17, suggested that black hole was £2.5 billion.

The watchdog’s final forecast on October 31 then suggested that it had been eliminated altogether and that there was now a £4.2 billion net positive above the Chancellor’s day-to-day spending plans.

The prospect of a hike in income tax rates – which was trailed for several weeks – were dropped on November 13, with the Treasury citing improved forecasting.

However, the OBR suggested it had provided ministers with no new forecasting in November.

"No changes were made to our pre-measures forecast after October 31,” the watchdog’s letter to the Treasury Select Committee said.

Ben Zaranko, an economist for the Institute for Fiscal Studies think tank, questioned the rationale behind the briefings in the run-up to the Budget.

He wrote on social media: "At no point in the process did the OBR have the Government missing its fiscal rules by a large margin. Leaves me baffled by the months of speculation and briefing.

“Was the plan to lead everyone to expect a big income tax rise, then surprise them on the day by not doing it..? "

Commenting on social media, Tory leader Mrs Badenoch said: “Yet more evidence, as if we needed it, that the Chancellor must be sacked. For months Reeves has lied to the public to justify record tax hikes to pay for more welfare.

"Her Budget wasn’t about stability. It was about politics: bribing Labour MPs to save her own skin. Shameful."

Shadow chancellor Sir Mel Stride called on Ms Reeves to resign.

"Rachel Reeves’ broken tax promises and the briefing debacle in the run-up to the Budget have had real consequences for our economy and for people across the country,” he said.

"The Chancellor must now do the right thing and step down."