Budget U-Turn Timeline Under Scrutiny
The Office for Budget Responsibility has publicly challenged the Treasury's account of why Chancellor Rachel Reeves abandoned plans to raise income tax in this week's budget, revealing she had knowledge of improved economic forecasts significantly earlier than previously claimed.
In an unusual move that highlights growing tensions between the independent watchdog and the Treasury, OBR chair Richard Hughes has written to the Treasury select committee to clarify the timeline of forecasting changes. The letter includes a detailed chart showing how the fiscal forecasts evolved throughout autumn, information not typically released to the public.
Contradictory Accounts Emerge
The controversy stems from Treasury briefings to journalists on November 14, following the Financial Times' revelation that Reeves and Prime Minister Keir Starmer had decided against raising income tax. Treasury sources suggested the improved OBR forecasts made the tax increase unnecessary, citing higher than expected inflation and wage growth.
However, Hughes' letter reveals that by October 31 - more than ten days before the apparent policy reversal - Reeves was already projected to meet her first fiscal rule with £4.2 billion to spare. The OBR confirmed that no significant alterations were made to economic forecasts after this date, except to accommodate Treasury policy decisions.
The timeline shows that in the first forecast round on October 3, Reeves faced breaching her first fiscal rule by just £2.5 billion, requiring adjustments between £12.5 billion and £22.5 billion to restore headroom, plus £7 billion for policy U-turns on winter fuel allowance and disability cuts.
Growing Tensions Surface
The relationship between Number 11 and the budget watchdog has become increasingly strained in the run-up to what many consider Reeves' crucial second budget. The chancellor had previously criticised the OBR's timing in revising productivity forecasts over the summer, which drove downgraded growth expectations.
"I think that it would have been a lot better if they had adjusted their forecasts the year before the election, or even last summer, to enable the new government to really understand the economic position," Reeves stated last month.
She also expressed frustration that the OBR failed to incorporate what the Treasury views as pro-growth policies, including the government's reset with the EU and potential youth mobility schemes, into its forecasts.
Despite the OBR's detailed timeline, Treasury sources firmly reject any suggestion that Hughes' letter contradicts their version of events. They maintain that final decisions could only be made after receiving forecasts incorporating all planned budget measures and their growth impacts.
In the final budget, Reeves ultimately chose to increase taxes by £26 billion by the end of the forecast period, creating headroom of £21.7 billion while funding policy changes including scrapping the two-child limit.
The issue is expected to feature prominently when Hughes appears before the Treasury select committee on Tuesday, alongside discussions about the accidental early release of budget documents that occurred last Wednesday.
