Sir Keir Starmer has denied that his chancellor misled the public about the country’s financial situation ahead of last week’s Budget.
The Conservatives have accused Rachel Reeves of giving an overly pessimistic impression as a “smokescreen” for tax rises, with Kemi Badenoch claiming she “lied to the public”.
Pointing to the lowered forecasts for economic productivity, the Prime Minister insisted there was “no mistaking”, saying it meant the government had £16 billion less than it would have otherwise.
In a speech, Sir Keir said he was “proud” of the budget, which highlighted measures aimed at reducing child poverty and the cost of living.
Meanwhile, the chair of the government’s independent spending watchdog, the Office for Budget Responsibility (OBR), has resigned over the inadvertent early publication of its analysis of the budget.
The document included market-sensitive forecasts and key details of her statement were revealed about an hour before the Chancellor’s statement.
In his resignation letter, Richard Hughes said it was “a technical but serious error” and that he took “full responsibility” for the shortcomings identified in the investigation of the incident.
Ahead of his budget on 26 November, Reeves gave strong indications that the government was planning to raise income tax rates – a move that would have broken a key manifesto promise made by Labor during last year’s general election campaign.
The Chancellor repeatedly refused to rule it out, as he pointed to forecasts for economic productivity being weaker than expected.
In a rare Downing Street news conference on 4 November, he warned that “it will also have an impact on the public finances, reducing tax receipts”, in comments that were widely interpreted as laying the ground for tax increases.
However, on Friday the OBR revealed it had told the Treasury ahead of the Chancellor’s press conference that the fall in productivity had been offset by higher wages, which increases the government’s tax revenues.
This was not made public until the Financial Times reported on 13 November that income tax rates would not be increased in the budget, when government sources explained the move by citing better-than-expected forecasts on salaries and tax receipts.
Ultimately, the budget included a £26 billion tax increase, raising the cap on income tax and the National Insurance cap by £8 billion for the next three years, but no increase in income tax rates.
Answering questions from journalists after his speech, Sir Keir was asked by BBC political editor Chris Mason whether, by failing to explain clearly what he knew about the public finances in his pre-Budget news conference, Reeves had misled the public.
In response, the Prime Minister said the decline in productivity was “a difficult starting point”, while the government was also committed to protecting the NHS, cutting borrowing costs and reducing the cost of living.
He said: “In that background it was inevitable that we would always have to increase revenues. So there is nothing confusing about that.”
Sir Keir also confirmed publicly for the first time that there was a time when the Government thought it might have to break its manifesto promise on tax.
However, he said that during the pre-budget process, the numbers improved and “it became clear to me and others that we might be able to do what we need to do with our priorities without violating the manifesto”.
He further said, “I did not want to violate the manifesto and that is why we came to the decisions that we did.”
Badenoch has called on Reeves to resign, saying that people “made real decisions because the Chancellor was telling them she was going to raise all kinds of taxes, only for us to find out that was not the case”.
Criticizing the leak of potential measures ahead of the Budget, the Conservative leader told the BBC: “Some people have had their pensions reduced, something that is irreversible.
“Some people left the country because they were worried about the exit tax. Others paid their mortgages in a way they might not have otherwise.”
Although he did not ask the Prime Minister to go, Badenoch said, “If he had anything to do with those misleading briefings, he has questions to answer”.
In his speech, Sir Keir described the budget as “necessary” and making the “right choice”.
He acknowledged that “tax rises make life harder for people” but argued that the alternative was to cut public services, reduce child poverty or ignore additional borrowing.
The PM said the Budget was “a moment of personal pride”, highlighting how the decision to scrap the two-child benefit limit will bring hundreds of thousands of children out of poverty.
He also promised to pursue reform of the welfare system, which he said had “trapped people in poverty” and “left young people too ill to work”.
In the summer, the government abandoned planned benefit cuts due to a major rebellion by Labor MPs.
Challenged over whether he could get the support of his own MPs to reform the system, Sir Keir said it was a “moral mission” and there was “strong consensus” on the need to get young people into work.
He did not give further details on potential reforms, saying only that two reviews were underway into “NEATs” – 16-24-year-olds who are not in education, employment or training – and another into the health and disability benefits needed to “complete their course”.
The Prime Minister also stressed that the budget would boost economic growth, despite the OBR’s conclusion that not a single measure included would change the growth forecast for the next five years to be monitored.
Sir Keir said he was “confident we can beat the forecasts”, after the OBR predicted the economy would grow slower than previously expected next year.
He vowed to cut “unnecessary red tape” and regulations to build the country.
Meanwhile, he said the Brexit deal had caused “significant damage to our economy” and promised to “keep moving towards a closer relationship with the EU”.
However, Lib Dem leader Sir Ed Davey said: “Keir Starmer’s speech talked about boosting growth but he is refusing to do the biggest thing to achieve it – fixing our trade with the EU through a new customs union.”
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