A return to Budget purdah would be no bad thing for Labour

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Editorial: Reeves is no liar, but Labour should never have made that untenable tax pledge in their manifesto

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Even in the current polarised and overheated political atmosphere, the charge of “liar” is a strong one. Still too potent for parliamentary usage, the leader of the opposition, Kemi Badenoch, has taken to social media to lay the charge against the chancellor of the exchequer: “For months, Reeves has lied to the public to justify record tax hikes to pay for more welfare. Her Budget wasn’t about stability. It was about politics: bribing Labour MPs to save her own skin. Shameful.”

Never one to pass by an opportunity for unarmed combat, Ms Badenoch repeated her claim on the Sunday television round, saying that Ms Reeves has “not told the truth” and that the shadow chancellor, Sir Mel Stride would be writing to the Financial Conduct Authority about the consequences of all the pre-Budget leaks for people making big decisions on their pensions and other personal financial matters.

The Tories’ vigorous attack has generated some dramatic headlines and forced the chancellor to defend herself in the terms that any politician dreads – having to “deny” lying to the voters rather than espousing the benefits of their policies. However, on balance, the chancellor should be acquitted of the offence, albeit not without some reprimand for her more general failure to be as fully transparent and convincing in her presentation of policy as she certainly should be. In other words, if she had been more open with the voters about her calculations over her time both as shadow chancellor and the real thing, she might not find herself in such an embarrassing, defensive predicament.

It is perfectly true that in its final assessment of the state of the public finances before it “scored” the list of Budget measures proposed by Ms Reeves, the independent Office for Budget Responsibility (OBR) declared that her fiscal targets for borrowing were going to be met by a margin of £4.2bn. So, far from the yawning deficit or “black hole” of £20bn to £30bn being disclosed by the Treasury to the media, there was in fact a surplus against targets. The Treasury therefore exaggerated the peril the public finances faced, the better, so the Badenoch narrative runs, to justify raising taxes for higher welfare spending (especially on child benefit), thus appeasing restive Labour MPs and saving the chancellor and the prime minister’s careers.

Perhaps the Treasury did overdo the gloom, not for the first time. More tendentious, the changes to social security weren’t urgent, but there is no world in which a £4.2bn surplus could be considered a sound basis for running the public finances for the rest of the parliament and beyond. It is not cash that can be played with, even if it sounds a lot, but an absurdly thin margin between two vastly bigger sums: £1.3 trillion in tax receipts and £1.5 trillion in public spending.

As the difference between two huge numbers, the budget deficit or surplus is liable to be extremely volatile, and therefore needs to be robust enough to withstand predictable economic trends, let alone shocks. Translated into household terms, for the sake of illumination, it’s like leaving aside a buffer of £4.20 in a monthly budget of £1,500 in outgoings and £1,300 income, with both fairly up and down figures. Not much at all, in fact. As Ms Reeves rightly pleads, her “headroom” had already deteriorated significantly because of U-turns on the winter fuel allowance and disability benefits and downgrades to productivity and growth in the years ahead. The result was that the famously slim and insufficient headroom of £9.9bn she’d planned last year had halved and the OBR had made clear that poorer productivity and growth forecasts would turn it negative by £16bn.

Ms Reeves has now created a more financially and politically stable framework for herself in which she enjoys some £21.7bn in the way of a buffer against adversity. That should avoid any “IMF crisis” like the one that overtook a previous Labour government half a century ago. It has meant that she has managed to pull off the remarkable double of pleasing her own backbenchers and keeping the capital markets reasonably reassured about the wisdom of lending the UK money. If she is lucky and beats the growth forecasts, as she claims she will, then Ms Reeves may have created herself some useful room for tempting tax cuts, or cancelled tax increases, in the run-up to the next election, exceeding expectations in the right direction for a change. But criticism remains.

There is no point pretending that, overall, Ms Reeves hasn’t made a complete hash of her first period as chancellor, and particularly in the wild gyrations in mood and speculation generated by her spin doctors and indeed her public pronouncements in the run-up to the Budget itself. The “setting the scene” speech on 6 November, widely assumed to herald a hike in income tax rates, was a particularly poor move. She would, in fact, be much better off restoring the traditional Budget practice of purdah – complete secrecy in the months before the big day.

More broadly, too, it can now be seen that Labour was indeed far too optimistic and misleading about taxation in the general election campaign last year, and before. Indeed, many independent forecasters said at that time that both main parties’ fiscal plans were more or less fantasy, and that whoever won the July 2024 contest would find themselves having to tax more, borrow more or cut spending in some or other permutation.

Labour’s manifesto promises about taxation were at best disingenuous and certainly foolish, in that no government should bind itself and limit its fiscal options in the way Labour did. The fault was not so much that Ms Reeves and her colleagues have broken the spirit of the manifesto pledge and the talk about “working people” (which they have), but that they made such a dangerously risky pledge in the first place.

Or put it this way: had the voters known in July 2024 what they know now would happen to their tax bills, would they still have voted Labour and given Sir Keir Starmer his parliamentary landslide victory? It has to be doubted. Whether Labour “lied” or not is debatable, but the sense of a promise betrayed is undeniable.

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