Reeves: PM and I decided ‘as a team’ not to hike income tax

Rachel Reeves said she and Sir Keir Starmer had decided “as a team” not to raise income tax as she hit out at “too many leaks” in the run-up to Budget.

The Chancellor told MPs the “very close partnership” between herself and the Prime Minister meant the move to extend a freeze on tax thresholds instead had been made jointly.

It came as a senior Treasury official confirmed a leak inquiry into reports of economic policy that emerged before Ms Reeves’s statement to the Commons would cover ministers as well as civil servants and advisers.

Appearing before Parliament’s Treasury Select Committee, the Chancellor said a Financial Times story which revealed she had dropped plans for an income tax rise was “incredibly damaging”.

She said: “It was not an off-the-record briefing, it was a leak. I’m absolutely categorical that that was not an authorised briefing.”

She said the report was “frustrating” because it gave the impression she might have dropped her commitment to rebuilding the “headroom” she had against her rule of balancing day-to-day spending with tax receipts.

In the weeks before the Budget, the Chancellor herself fuelled speculation she was preparing to raise income tax in a speech that sought to roll the pitch for the autumn statement by warning of difficult decisions ahead.

She had suggested that sticking to Labour’s pre-election promises, which included a pledge not to hike income tax, would only be possible with “deep cuts” to public investment.

A leak to the Financial Times later revealed the proposal to increase income tax rates for the first time in 50 years had been dropped.

Speaking on Wednesday, Ms Reeves said: “The Budget had too much speculation. There were too many leaks, and much of that, those leaks and speculation, were inaccurate, very damaging, as well as the IT security issues… The OBR’s report also noted that the spring statement had been accessed early as well.

“I want to say on the record how frustrated I am and have been by these incidents and the volume of speculation and leaks, and that is why I am doing something about it, because we cannot allow this to happen again.

“A leak inquiry is under way with my full support, being led by the permanent secretary at the Treasury, and we are also conducting a review of the Treasury security processes to inform future fiscal events.”

Appearing alongside Ms Reeves, Treasury permanent secretary James Bowler confirmed the leak inquiry would cover ministers as well as officials and advisers.

Asked whether the Prime Minister made the decision not to raise income tax, Ms Reeves said she had met Sir Keir “two, three times a week during the Budget process”.

She said: “That is not always the case between chancellors and prime ministers. I recognise that. But there is a very close partnership between myself and the Prime Minister.

“And so we took him through all of the numbers and all of the options and we decided it together as a team, because that is what the Prime Minister and I am.”

Former OBR chairman Richard Hughes resigned after the watchdog’s assessment of the Chancellor’s plans was inadvertently made available online before she delivered her speech last month.

Meanwhile, Ms Reeves faces accusations of misleading the public about the state of the public finances after a letter from the OBR contested her narrative that she needed to raise taxes to fill a so-called “black hole”.

The OBR’s pre-Budget forecasting instead suggested Ms Reeves’s spending plans would run a surplus because of changing economic headwinds.

A Tory-led debate in the Commons on Wednesday afternoon will see the party use a parliamentary process known as a censure motion to call on Ms Reeves to apologise for how the Budget unfolded.

Addressing the Treasury Committee, Ms Reeves said there had been a lot of information shared between the OBR and the Treasury in the weeks leading up to the autumn statement.

“Pre-measures is not the final word from the Office for Budget Responsibility, because then you have post-measures forecasts,” she told MPs.

“They take into account the policy decisions that we take as a Government on tax and spend… so there was plenty of additional information being shared between the OBR and the Treasury between October 30 and major measures one and indeed major measures two.”

Ahead of the Conservative-led debate later, shadow chancellor Sir Mel Stride accused Ms Reeves of putting “party before country”.

He said: “Rachel Reeves has repeatedly misled the British public. She promised she wouldn’t raise taxes on working people – and then she did. She insisted there was a black hole in the public finances – and there wasn’t.”