Did the chancellor mislead the public, and her own cabinet, before the budget?

It’s a good question, and we’ll come to it in a second, but let’s begin with an even bigger one: is the prime minister continuing to mislead the public over the budget?

The details are a bit complex but ultimately this all comes back to a rather simple question: why did the government raise taxes in last week’s budget? To judge from the prime minister’s responses at a news conference just this morning, you might have judged that the answer is: “because we had to”.

“There was an OBR productivity review,” he explained to one journalist. “The result of that was there was £16bn less than we might otherwise have had. That’s a difficult starting point for any budget.”

Politics latest: OBR boss resigns over budget leak

Time and time again throughout the news conference, he repeated the same point: the Office for Budget Responsibility had revised its forecasts for the UK economy and the upshot of that was that the government had a £16bn hole in its accounts. Keep that figure in your head for a bit, because it’s not without significance.

But for the time being, let’s take a step back and recall that budgets are mostly about the difference between two numbers: revenues and expenditure; tax and spending. This government has set itself a fiscal rule – that it needs, within a few years, to ensure that, after netting out investment, the tax bar needs to be higher than the spending bar.

At the time of the last budget, taxes were indeed higher than current spending, once the economic cycle is taken account of or, to put it in economists’ language, there was a surplus in the cyclically adjusted current budget. The chancellor had met her fiscal rule, by £9.9bn.

This, it’s worth saying, is not a very large margin by which to meet your fiscal rule. A typical budget can see revisions and changes that would swamp that in one fell swoop. And part of the explanation for why there has been so much speculation about tax rises over the summer is that the chancellor left herself so little “headroom” against the rule. And since everyone could see debt interest costs were going up, it seemed quite plausible that the government would have to raise taxes.

Then, over the summer, the OBR, whose job it is to make the official government forecasts, and to mark its fiscal homework, told the government it was also doing something else: reviewing the state of Britain’s productivity. This set alarm bells ringing in Downing Street – and understandably. The weaker productivity growth is, the less income we’re all earning, and the less income we’re earning, the less tax revenues there are going into the exchequer.

The early signs were that the productivity review would knock tens of billions of pounds off the chancellor’s “headroom” – that it could, in one fell swoop, wipe off that £9.9bn and send it into the red.

Read more:
Main budget announcements – at a glance
Enter your salary to see how the budget affects you

That is why stories began to brew through the summer that the chancellor was considering raising taxes. The Treasury was preparing itself for some grisly news. But here’s the interesting thing: when the bad news (that productivity review) did eventually arrive, it was far less grisly than expected.

True: the one-off productivity “hit” to the public finances was £16bn. But – and this is crucial – that was offset by a lot of other, much better news (at least from the exchequer’s perspective). Higher wage inflation meant higher expected tax revenues, not to mention a host of other impacts. All told, when everything was totted up, the hit to the public finances wasn’t £16bn but somewhere between £5bn and £6bn.

Why is that number significant? Because it’s short of the chancellor’s existing £9.9bn headroom. Or, to put it another way, the OBR’s forecasting exercise was not enough to force her to raise taxes.

The decision to raise taxes, in other words, came down to something else. It came down to the fact that the government U-turned on a number of its welfare reforms over the summer. It came down to the fact that they wanted to axe the two-child benefits cap. And, on top of this, it came down to the fact that they wanted to raise their “headroom” against the fiscal rules from £9.9bn to over £20bn.

These are all perfectly logical reasons to raise tax – though some will disagree on their wisdom. But here’s the key thing: they are the chancellor and prime minister’s decisions. They are not knee-jerk responses to someone else’s bad news.

Yet when the prime minister explained his budget decisions, he focused mostly on that OBR report. In fact, worse, he selectively quoted the £16bn number from the productivity review without acknowledging that it was only one part of the story. That seems pretty misleading to me.

Sir Keir Starmer has denied he and the chancellor misled the public and the cabinet over the state of the UK’s public finances ahead of the budget.

The prime minister told Sky News’ political editor Beth Rigby “there was no misleading”, following claims he and Rachel Reeves deliberately said public finances were in a dire state, when they were not.

Politics latest: Reeves says Cabinet briefed on morning of budget

He said a productivity review by the Office for Budget Responsibility (OBR), which provides fiscal forecasts to the government, meant there would be £16bn less available so the government had to take that into account.

“To suggest that a government that is saying that’s not a good starting point is misleading is wrong, in my view,” Sir Keir said.

Cabinet ministers have said they felt misled by the chancellor and prime minister, who warned public finances were in a worse state than they thought, so they would have to raise taxes, including income tax, which they had promised not to in the manifesto.

At last Wednesday’s budget, Ms Reeves unveiled a record-breaking £26bn in tax rises.

The OBR published the forecasts it provided to the chancellor in the two months before the budget, which showed there was a £4.2bn headroom on 31 October – ahead of that warning about possible income tax rises on 4 November.

Sir Keir added: “There was a point at which we did think we would have to breach the manifesto in order to achieve what we wanted to achieve.

“Late on, it became possible to do it without the manifesto breach. And that’s why we came to the decisions that we did.”

Sir Keir said a productivity review had not taken place in 15 years and questioned why it was not done at the end of the last government, as he blamed the Conservatives for the OBR downgrading medium-term productivity growth by 0.3 percentage points to 1% at the end of the five-year forecast.

Read more:
Senior cabinet minister defends Reeves
‘Of course I didn’t lie about budget forecasts, says chancellor

The prime minister added: “I wanted to more than double the headroom, and to bear down on the cost of living, because I know that for families and communities across the country, that is the single most important issue, I wanted to achieve all those things.

“Starting that exercise with £16 billion less than we might otherwise have had. Of course, there are other figures in this, but there’s no pretending that that’s a good starting point for a government.”

On Sunday, when asked by Sky’s Trevor Phillips if she lied, Ms Reeves said: “Of course I didn’t.”

She also said the OBR’s downgrade of productivity meant the forecast for tax receipts was £16bn lower than expected, so she needed to increase taxes to create fiscal headroom.

Virgin Media has been fined £23.8m after it disconnected vulnerable customers during a phone line migration.

Regulator, Ofcom, ruled the telecoms company had placed thousands of people “at direct risk of harm”.

The watchdog said users of Telecare – an emergency alarm and monitoring service – were disconnected if they failed to engage with a process, in late 2023, which switched old analogue lines to a digital alternative.

Money latest: Life as an international boxer

Ofcom said that Virgin Media had disclosed its own failures under consumer protection rules and its full cooperation was taken into account when determining the size of the penalty.

Ian Strawhorne, Ofcom’s director of enforcement, said: “It’s unacceptable that vulnerable customers were put at direct risk of harm and left without appropriate support by Virgin Media, during what should have been a safe and straightforward upgrade to their landline services.

“Today’s fine makes clear to companies that, if they fail to protect their vulnerable customers, they can expect to face similar enforcement action.”

Ofcom found that Virgin Media failed properly to identify and record the status of telecare customers, resulting in significant gaps in the screening process.

“This meant that those affected did not receive the appropriate level of tailored support through the migration process”, it said.

It also criticised Virgin Media’s approach to disconnecting Telecare customers who did not engage in the migration process, “despite being aware of the risks posed”.

The watchdog said it had put thousands of vulnerable customers “at a direct risk of harm and prevented their devices from connecting to alarm monitoring centres while the disconnection was in place”.

The money from the fine goes to the Treasury.

A Virgin Media spokesperson said: “As traditional analogue landlines become less reliable and difficult to maintain, it’s essential we move our customers to digital services.

“While historically the majority of migrations were completed without issue, we recognise that we didn’t get everything right and have since addressed the migration issues identified by Ofcom.

“Our customers’ safety is always our top priority and, following an end-to-end review which began in 2023, we have already introduced a comprehensive package of improvements and enhanced support for vulnerable customers including improved communications, additional in-home support and extensive post-migration checks, as well as working with the industry and Government on a joint national awareness campaign.

“We’ve been working closely with Ofcom, telecare providers and local authorities to identify customers requiring additional support and are confident that the processes, policies and procedures we now have in place allow us to safely move customers to digital landlines.”