A senior official at Britain’s economic forecaster has said he does not believe the Chancellor was misleading when she said the situation with the public finances was “very challenging” ahead of the Budget.
Professor David Miles of the Office for Budget Responsibility (OBR) described MP Rachel Reeves’ comments ahead of the announcement of her tax and spending plans as “not inconsistent” with the position she faces.
Reeves has rejected claims he was misleading the public about the country’s finances after the OBR’s economic forecasts were revealed to be better than widely expected.
However, Professor Miles said that despite the forecast, the Chancellor still faced a “very difficult budget and very difficult choices”.
He said the OBR raised concerns with Treasury officials about leaks to the media ahead of the Budget, adding: “I think it was clear that we did not find it helpful. We have made that clear.”
But he said the watchdog was not “at war” with the Treasury.
A political controversy has erupted over information shared with the public over the past few weeks on the health of the economy and the choices the Chancellor will need to make.
Last week’s Budget included a total of £26bn in tax rises, with plans to raise £8bn by extending the cap on income tax and the National Insurance cap for the next three years. The limit of two children benefit was also abolished.
In the build-up to the budget, Reeves repeatedly talked about a decline in the UK’s projected economic productivity, which would make it harder for it to meet its borrowing rules, leading to speculation that income tax rates themselves would rise, breaking the manifesto pledge.
On 4 November, he used a rare pre-Budget speech in Downing Street to warn that Britain’s productivity was weaker “than ever before” and that this had “a knock-on effect on the public finances in the form of lower tax receipts”.
However, it has since emerged that the OBR, which assesses the government’s tax and spending policies, told the Treasury on 31 October that it was on track to meet its main borrowing rule by £4.2 billion as the fall in productivity is being offset by higher wages, which increases the government’s tax receipts.
The Conservatives have made an overly pessimistic impression of the Chancellor as a “smokescreen” for raising taxes to increase welfare spending, with leader Kemi Badenoch claiming he “lied to the public”.
The £4.2 billion buffer was less than the £9.9 billion left by Reeves in the previous budget, and Professor Miles told a committee of MPs it was still “a significant” challenge for the government, which had wanted to increase the figure overall.
The so-called headroom chancellors have left themselves – essentially a buffer to fall back on – has become smaller in recent years. The Chancellor was on track to create a buffer of £20bn-£30bn before November 2022.
Questioned by MPs over the Chancellor not mentioning a surplus in the forecast, Professor Miles said that £4.2 billion, while a positive number, “was by a small margin”, adding that the OBR did not really want to interpret it as “this is very, very good news, there is no gap to fill – as people were saying”.
“I don’t think the Chancellor was misleading in saying earlier that week that the fiscal situation was very challenging.
“The Chancellor was saying this was a very difficult budget and very difficult choices needed to be made. And I don’t think that was inconsistent with the last pre-measures assessment we did, although it showed a very small positive amount of so-called headroom, but it was very little.”
Professor Miles said the £4.2 billion buffer would also have been reduced to less than £3 billion because the OBR’s forecast did not take into account the welfare and winter fuel payment U-turns by the government.
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