🔗 Share this article

The charge represents a grave matter: suggesting Rachel Reeves may have lied to the British public, scaring them into accepting billions in extra taxes that would be used for increased welfare payments. While exaggerated, this is not usual political bickering; this time, the stakes could be damaging. A week ago, detractors of Reeves alongside Keir Starmer were labeling their budget "a mess". Now, it's denounced as lies, and Kemi Badenoch demanding the chancellor to quit.

Such a grave charge requires straightforward answers, so let me provide my view. Has the chancellor lied? Based on the available information, no. She told no whoppers. But, despite Starmer's recent comments, it doesn't follow that there's no issue here and we can all move along. The Chancellor did mislead the public regarding the factors shaping her decisions. Was this all to funnel cash to "welfare recipients", like the Tories assert? Certainly not, and the numbers demonstrate it.

A Reputation Takes A Further Hit, But Facts Should Prevail

The Chancellor has taken another blow to her standing, however, should facts still matter in politics, Badenoch should call off her attack dogs. Perhaps the stepping down recently of OBR head, Richard Hughes, over the leak of its internal documents will satisfy Westminster's appetite for scandal.

Yet the real story is far stranger than the headlines suggest, extending broader and deeper beyond the political futures of Starmer and the class of '24. Fundamentally, this is an account about what degree of influence the public have in the governance of the nation. This should concern everyone.

First, on to the Core Details

After the OBR released last Friday a portion of the forecasts it shared with Reeves while she prepared the budget, the surprise was instant. Not only had the OBR never done such a thing before (an "unusual step"), its numbers apparently contradicted the chancellor's words. While leaks from Westminster were about the grim nature of the budget would have to be, the OBR's own predictions were improving.

Take the Treasury's most "unbreakable" fiscal rule, stating by 2030 day-to-day spending for hospitals, schools, and other services must be completely paid for by taxes: at the end of October, the watchdog reckoned it would barely be met, albeit by a minuscule margin.

Several days later, Reeves held a media briefing so extraordinary that it caused breakfast TV to break from its usual fare. Weeks before the actual budget, the country was put on alert: taxes would rise, with the main reason being pessimistic numbers from the OBR, specifically its finding that the UK had become less productive, putting more in but getting less out.

And so! It happened. Despite the implications from Telegraph editorials and Tory media appearances suggested over the weekend, this is essentially what happened during the budget, which was significant, harsh, and grim.

The Deceptive Justification

The way in which Reeves misled us concerned her justification, because those OBR forecasts did not force her hand. She could have chosen different options; she might have provided other reasons, even on budget day itself. Before last year's election, Starmer pledged precisely this kind of public influence. "The promise of democracy. The power of the vote. The possibility for national renewal."

One year later, and it is a lack of agency that is evident from Reeves's pre-budget speech. Our first Labour chancellor for a decade and a half casts herself as an apolitical figure at the mercy of forces outside her influence: "In the context of the persistent challenges on our productivity … any chancellor of any party would be in this position today, facing the decisions that I face."

She certainly make a choice, only not the kind the Labour party cares to publicize. From April 2029 British workers and businesses are set to be paying an additional £26bn a year in tax – but most of that will not be funding improved healthcare, new libraries, nor enhanced wellbeing. Whatever nonsense comes from Nigel Farage, Badenoch and others, it is not getting splashed on "welfare claimants".

Where the Money Really Goes

Rather than going on services, more than 50% of this additional revenue will instead give Reeves cushion against her self-imposed budgetary constraints. About 25% goes on paying for the administration's policy reversals. Reviewing the OBR's calculations and giving maximum benefit of the doubt to a Labour chancellor, a mere 17% of the tax take will fund genuinely additional spending, for example scrapping the two-child cap on child benefit. Removing it "will cost" the Treasury only £2.5bn, as it was always a bit of theatrical cruelty from George Osborne. This administration could and should abolished it in its first 100 days.

The True Audience: The Bond Markets

The Tories, Reform along with all of right-wing media have been railing against how Reeves fits the caricature of Labour chancellors, soaking strivers to spend on the workshy. Labour backbenchers are applauding her budget as a relief for their troubled consciences, safeguarding the most vulnerable. Each group are 180-degrees wrong: The Chancellor's budget was primarily aimed at investment funds, speculative capital and participants within the financial markets.

The government can make a strong case for itself. The forecasts provided by the OBR were deemed insufficient for comfort, particularly given that lenders charge the UK the greatest borrowing cost among G7 rich countries – exceeding that of France, that recently lost a prime minister, and exceeding Japan which has far greater debt. Combined with the policies to cap fuel bills, prescription charges and train fares, Starmer and Reeves argue this budget allows the central bank to reduce its key lending rate.

You can see why those wearing red rosettes might not frame it in such terms when they visit #Labourdoorstep. As a consultant for Downing Street says, Reeves has effectively "utilised" financial markets as an instrument of control over Labour MPs and the voters. This is why the chancellor can't resign, regardless of which promises are broken. It is also the reason Labour MPs will have to knuckle down and support measures to take billions off social security, as Starmer indicated recently.

Missing Statecraft and an Unfulfilled Pledge

What is absent from this is any sense of strategic governance, of harnessing the Treasury and the central bank to reach a fresh understanding with markets. Also absent is any intuitive knowledge of voters,