Tories demand answers from OBR over Reeves’s income tax backtrack

The Conservatives have accused Chancellor Rachel Reeves of undermining the budget process and dragging the Office for Budget Responsibility (OBR) into the political debate after Labor was briefed that an improving economic outlook had prompted her to abandon plans to rise income tax.

The shadow chancellor, Sir Mel Stride, has written to Richard Hughes, head of the Office of the Budget Oversight Office, demanding clarification on when the Chancellor received the watchdog’s forecasts and whether they played any role in last week’s shock U-turn. Reeves had been expected to announce a 2p rise in the basic rate of income tax but reversed course amid intense speculation about Sir Keir Starmer’s leadership difficulties.

Reeves dropped the plans two weeks after the Office for Budget Responsibility delivered its final forecasts ahead of the Budget on 31 October. The timing raised suspicions among Conservatives that the Chancellor’s decision was politically motivated and not dictated by numbers. In his letter, Stride said the government’s explanations were “simply illogical”, adding that the chancellor had “distorted the budget process” by briefing the press on the details and “dragging the independent Office for Budget Responsibility into the crossfire”.

Government sources claimed Reeves acted on the basis of the Treasury’s updated analysis of the OBR’s long-term growth forecasts received on 10 November, which reportedly showed a £10 billion improvement in public finances. However, the Office for Budget Responsibility’s published timetable says its final economic forecasts – produced before any policy decisions – were delivered on October 31 and should provide the “stable base” for the Chancellor’s choices.

Stride asked Hughes to confirm whether the Chancellor of the Exchequer had received the forecasts on that date, and whether any changes had been made to the forecasts since then other than those arising from the Treasury’s scoring measures. He also questioned whether Reeves had breached confidentiality by publicly asserting that the Office for Budget Responsibility had lowered long-term productivity forecasts for the UK.

Former Permanent Chancellor of the Exchequer Lord Burns said it was a “huge mistake” for the Chancellor to pursue an income tax rise and then abandon it, especially in light of the reaction in financial markets. UK government bond yields rose after reports of a reversal, forcing ministers to reassure investors that the decision was based on expectations from the Office for Budget Responsibility rather than political turmoil.

The Chancellor’s retreat from the income tax rise now leaves her needing to raise up to £25bn through a range of smaller charges to meet her fiscal rules. Freezing income tax thresholds and increasing duties on property, banks, gambling companies and electric cars are expected to form part of next week’s Budget.

Treasury insiders said the late-stage change left officials scrambling to finalize the numbers, with several measures yet to be decided. One source noted that Reeves had previously ruled out higher taxes on banks “while the sun was shining”, but was now facing pressure from Labor MPs to reconsider bank profits.

The political turmoil comes as new data from the British Retail Consortium pointed to a sharp decline in consumer confidence heading into the crucial pre-Christmas season, following what it described as a “turbulent” month of Budget speculation.

The Treasury said Reeves would set out full details in the budget. The OBR declined to comment.