Is Rachel Reeves a liar? No. But she is guilty of the sin of omission.
Earlier this month, the Chancellor presented an excessively bleak economic outlook to justify, at the Budget, politically driven tax increases instead of those strictly needed for financial reasons.
To untangle this current row, rewind to Reeves’s extraordinary breakfast-time speech in Downing Street on November 4. She heavily implied she was facing a black hole in the public finances – partly due to a downgrade to productivity forecasts expected from the fiscal watchdog, the Office for Budget Responsibility (OBR).
During that speech, the Chancellor told the public that weaker productivity had “consequences for the public finances” in the form of “lower tax receipts”. She was setting the stage for tax rises in her Budget. She went further in a BBC radio interview six days later, strongly hinting at a manifesto-breaking hike in income tax.
While the OBR did deliver a productivity downgrade that wiped £16 billion off expected tax receipts, much of that was cancelled out by inflation and higher wage growth, leaving a £4.2bn surplus against Reeves’s own borrowing rules.
Caught up in a row over whether she misrepresented the overall picture, Reeves pointed out on Sunday this would have been the lowest headroom any chancellor had secured against their fiscal rules. It also didn’t consider Labour’s political decisions, such as the U-turn on cutting winter fuel payments, welfare reform, or the abolition of the two-child benefit cap.
“I was clear I needed to rebuild those public finances,” Reeves told the BBC today, suggesting her move to double her fiscal buffer would both satisfy the money markets and give the Bank of England space to continue to cut interest rates, adding that “£4bn is clearly not enough fiscal headroom”.
Before her welfare spending decision, Reeves could have met her fiscal rule without freezing income tax thresholds. Instead, she will bring nearly a quarter of people into the higher tax bracket.
“Many of the attacks on Rachel Reeves are vicious. It’s not fair to say she’s a liar – the OBR projections of headroom were too small to help her. But to many voters the accusation feels right because by shifting the grounds of her underlying argument she has started to seem shifty to them,” John McTernan, an adviser to former Prime Minister Tony Blair in Government, told The i Paper.
Kemi Badenoch sent an email to supporters over the weekend saying Reeves “sold her Budget on a lie”. On Sunday the Conservative Leader repeated her call for Reeves to be sacked and was unapologetic about her own performance mocking the Chancellor.
In her Budget reply in the House of Commons Badenoch called Reeves “spineless” and mocked her comments about condescending men. Opinion on Badenoch’s comments largely divided on party lines.
The Tories will try to keep the row going. They’ve already reported the Treasury to the Financial Conduct Authority over possible market manipulation.
But as Reeves will not face any meaningful calls to quit from within the Parliamentary Labour Party, her position is safe. For now, at least.
Reeves won’t quit for several reasons. Badenoch’s Commons attack was welcomed by many on the Tory benches: “She’s on fire,” one Tory MP remarked at the time. But the comments had the opposite effect in Labour circles. “We thought it was pretty disgusting, actually, and rallied round Rachel,” a Labour MP riposted.
Unusually for a fractious bunch, Labour MPs are currently – and probably temporarily – chipper. One Labour MP told The i Paper they were so happy about lifting children in their constituency out of poverty that they cried with joy after the Budget.
Others are less emotional, more strategic. Another Labour MP said their colleagues who are looking over their shoulders at the electoral threat from the Greens and the Liberal Democrats would breathe more easily after Reeves’ statement.
“Although the child poverty measure is not popular overall in the country – and the PLP absolutely know that – in terms of reuniting a splintered left block, it’s fundamentally important to how we get re-elected next time around,” the Labour MP told The i Paper.
Whatever reason for their joy, the effect is the same. Any leadership challenges have abated until after local elections in May. Reeves is safe in post for as long as Sir Keir Starmer is.
The Tories and Reform say Reeves should resign. Naturally. They know it would, domino-like, lead to Starmer’s early departure too.
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But left-wing pressure against Reeves’s Budget has only come from Unite’s socialist leader and longtime Government critic, Sharon Graham, whose union’s links to the Labour Party hang by the finest of threads. Badenoch and Graham make for an unlikely coalition – and not one that will unduly worry No 11 Downing Street in the short term.
When he launched Labour’s pre-election manifesto, Starmer promised a return to “serious” government and a change of culture in No 10. The country expected more of them.
And so even if Reeves can resist right-wing calls to quit, Labour strategists should be concerned about the lasting impression the whole sorry Budget saga has left on the country. A shifty-looking Government won’t be given the benefit of the doubt in future.
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