Rachel Reeves has denied lying about the state of the country's finances to justify tax increases, as she faces calls to resign and an investigation by the Financial Conduct Authority. Critics claim she exaggerated a budget deficit to garner support for her £26bn tax hikes. Reeves stated that she did not lie and that Prime Minister Keir Starmer was fully informed of pre-Budget developments, emphasizing their partnership.
She defended her budget by arguing that even a £4bn surplus would have been the lowest headroom against fiscal rules, and did not account for additional spending decisions like U-turns on winter fuel payments or welfare reforms, and the abolition of the two-child benefit cap. Reeves asserted that presenting a £4bn surplus as acceptable without an economic repair job would have been inadequate.
Regarding Labour's manifesto pledge not to raise taxes, Reeves conceded that people would be asked to pay more, but defended the decision to spend billions on abolishing the two-child benefit cap, stating it was a choice to support children going hungry and living in inadequate housing.
Conservative leader Kemi Badenoch accused Reeves of raising taxes to pay for welfare and called for her resignation. Badenoch claimed that Reeves held an emergency press conference to highlight the dire financial situation, despite the Office for Budget Responsibility (OBR) informing her of an improved deficit. She alleged that Reeves attempted to soften the impact of tax rises by pre-emptively portraying the fiscal situation as worse than it was.
The controversy stems from the OBR informing Reeves in September and October that the deficit had improved and was eliminated, yet in a November speech, she highlighted consequences for public finances and suggested tax rises were necessary due to a £20bn gap. While a productivity downgrade did reduce expected tax receipts, inflation and higher wage growth largely offset this, resulting in a £4.2bn surplus against her borrowing rules.