Rachel Reeves has rejected opposition claims she “lied” about the state of public finances ahead of her Budget.
Opposition figures have accused him of misleading the public about the size of the financial “repair job” he faces, with Tory leader Kimmy Badenoch calling for him to resign.
Reeves, who is supported by Sir Keir Starr, insisted “I’m not lying, of course”.
So what is row? Yahoo News UK explains…
Why has Reeves been accused of lying?
The chancellor is facing scrutiny over what she told the public and markets about the state of the economy in the run-up to her budget, delivered on November 26.
There was a pre-Budget estimate that he faced a gap of £20bn in meeting his fiscal rules, partly as a result of falling productivity forecasts.
Those rumors were fueled by Reeves himself when he used a speech on November 4 to suggest that tax increases were necessary because weak productivity growth would have “consequences for public finances.”
But on 28 November, two days after Reeves presented his budget, the Office for Budget Responsibility (OBR) said it had informed the chancellor as early as 17 September that rising wages and inflation-adjusted taxes meant the cut could be lower than initially expected – and in October said it had been removed entirely.
WATCH: ‘Of course I’m not lying about the state of public finances, Reeves insists.
Opposition politicians have claimed that Reeves was “misleading” the public as the OBR had already provided him with forecasts that the situation was not as bad as feared.
While the OBR delivered a productivity downgrade that wiped £16bn from expected tax receipts, much of that was canceled out by inflation and higher wage growth, leaving a £4.2bn surplus against Reeves’ borrowing rules.
But the chancellor defended himself in a series of interviews on Sunday (30 November), saying: “Anyone who thinks the public finances shouldn’t be repaired, I don’t accept that.
“We need to build more resilience, more headroom into our economy. That’s what I did with that investment in the NHS and cutting bills for families.”
Reeves told Sky News the £16n productivity downgrade meant she would need to raise taxes and insisted “I was honest and clear in my speech at the beginning of November”.
She made the point that the £4.2bn savings would have been the lowest headroom any chancellor has secured against her financial rules.
That surplus does not take into account the cost of a U-turn on cuts to winter fuel payments or welfare reforms, as well as the abolition of the two-child benefit cap.
What is the response?
Conservative leader Badenoch said Reeves should resign, saying she was trying to justify tax increases for her welfare measures, such as scrapping the two-child benefit cap, to appease unhappy Labor MPs.
Badenoch told the BBC’s Laura Kuensberg program on Sunday: “The chancellor has called an emergency press conference. [on 4 November] Telling everyone how dire the economy was and now we see that the OBR was saying the complete opposite of him.
“She was collecting taxes to pay for welfare.
“The only thing that wasn’t funded was the welfare payments that she made and she’s making them on the backs of a lot of people out there who are working very hard and getting poorer.
Rachel Reeves and Kemi Badenoch BBC Sunday with Laura Kuensberg Studio. (PA)
“And because of that, I believe he should resign.”
Badenoch told GB News Reeves “what she was doing” was when she “lied” about the country’s finances in order to “send a signal to the market” and seek favorable treatment by the bond markets to “raise money for welfare”.
She said that if the CEO had behaved like this before giving the annual report, they should have been jailed.
Writing on social media earlier in the week, Badenoch said: “For months Reeves has lied to the public that tax increases were justified to pay for more welfare. His budget was not about stability. It was about politics: bribing Labor MPs to save their own skins. Shameful.”
Both the Tories and the SNP have written to the Financial Conduct Authority, calling on it to look into the “misleading” comments from Reeves.
Meanwhile, Reform Britain leader Nigel Farage has asked the Prime Minister’s independent standards adviser, Sir Laurie Magnus, to look into possible breaches of the ministerial code.
The code calls on ministers to “give Parliament accurate and truthful information” and to be “as open as possible with Parliament and the public”.
In his letter, Farage accused Reeves of “advanced and deliberate fiction on multiple platforms, after the OBR forecasts were known to the Treasury, and the existence of fiscal headroom was not disclosed to Parliament or the public”.
Is Starr supporting his Chancellor?
yes Downing Street said “any misleading talk about the need for significant revenue increases as a result of the OBR figures, including the productivity downgrade they imply, is patently untrue”.
And Starr will use a speech on Monday (1 December) to back Reeves’ decisions on the Budget and set out his long-term development plans.
He will praise the budget for reducing the cost of living, ensuring economic stability through greater headroom, reducing inflation and a commitment to fiscal discipline, investment and protection of public services.
